If you are self-employed / a sole trader or in a partnership you may be interested to learn that in this year’s Finance Bill 2013 a new income tax scheme for the smallest of businesses has been drafted.
If you are below the VAT threshold you will be able opt to calculate your tax in a ‘simpler’ way starting from the tax year ending 5 April 2014 (beginning 6 April 2013).
You may recall conversations with your accountant about invoices you have either sent or received but have not yet been paid, and discussions around the value of stock and your proportion of your house you use as your office. Well, under the new scheme some of this complexity is removed.
The government has realised (at long last, you may say) that they need to make it easier for you to understand how much tax you should be paying, not just once a year when you sit down with your accountant or you do your tax return. I have been working with the HMRC to evaluate and get to grips with the scheme to understand the implications from an accounting software developer’s perspective and throughout this process I could see the real intention to make your tax-life much easier – unfortunately it’s not about making it cheaper.
What changes have been proposed?
Well, without getting into too much detail here, essentially the new scheme will allow you to do your accounting of the income you receive and the expenses and payments you make strictly on actual money in, money out basis.
You only need to concern yourself with goods or services you have been paid for or paid out for. This is called ‘cash-based accounting’ (which was how we always did it before accountants got involved and complicated matters)! You will still need to take care with expenses which are disallowed, in other words you cannot claim for a night out at the Black Bull Pub with your customer for example, so these costs will need to be tracked separately.
Big purchases (excluding cars and motorbikes) such as laptops or equipment, etc will no longer be subject to limits (i.e. as under capital allowances) just as long as you account for them as you pay for them. There will be a limit on the amount interest charges you claim however; this will be £500 for the year 2013/14.
The other big change is the use of your motor vehicles (cars and motorbikes) and use of home. These costs can optionally be accounted for on a usage basis, so for cars the business miles you do and for home – the time spent there doing paperwork or whatever you need to do in relation to your business. The miles and time units are then multiplied by a HMRC set rate to calculate a money value for your accounts. The motor vehicle rate is all inclusive to pick up the original purchase plus all running and maintenance costs. You don’t have to use this method, it’s optional, but you might prefer just to track just miles and hours rather than split out bills to try and identify what home and motor costs are personal and what are business.
Sage One Cashbook is perfect for cash-based accounting
HMRC will be publishing help guides and ‘Decision Helpers’ to see for yourself (or with your accountant if you have one) whether these changes are right for you.
Over the coming days and weeks I will also be explaining how our Sage One Cashbook service can be used if you have opted to use any of these changes. I will also get into some detail around the mileage and vehicles and use of home etc.
Sage One Cashbook is perfect for self-employed people using a cash-based accounting system and at just £5+VAT per month is great value, especially when you consider that FREE 24hr telephone and email support is included in the price! Take a closer look at http://uk.sageone.com/cashbook
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