Cash basis for calculating taxable income for qualifying small unincorporated businesses.

Introduced in April 2013.

 

1. Qualifying small businesses can calculate their profit and loss based on cash received and paid during the financial year. 

2. Flat rate can be used particular items of business expenditure.

 

Key aspects of the cash basis scheme include:​

• optional scheme 

• some businesses cannot use cash basis (for example, farming)

• sometimes cash basis may not be preferable. Banks prefer accounts, prepared on traditional accounting basis. So cash basis may not be suitable. 

 

Simplified expenses

Simplified expenses can be used by any unincorporated business, whether or not they have already chosen to use the cash basis.

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Simplified expenses are based on ‘easier to follow’ rules that can be used when calculating some business expenses. These simplified expenses are all optional. They are:

 

• fixed allowances for business mileage

 

The rates per business mile that can be claimed are:

 

VehicleFlat rate per business mile:

 

• cars and goods vehicles first 10,000 miles45p

• cars and goods vehicles after 10,000 miles25p

 

Motorcycles24p:

 

The flat rate covers the costs of buying, running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle.

 

The mileage rate does not include incidental expenses incurred in connection with a particular journey, such as tolls, congestion charges and parking fees. These will be allowable as a deduction where they are incurred solely for business purposes.

 

Alternatively, the unincorporated business may choose to claim actual costs. The business may add up the total costs of running the car for the year (service, fuel, road tax, insurance etc) and then do the pro-rata calculation based on business / non-business miles for the year (will need a detailed travel log in any event).

 

• a flat rate to calculate expenses relating to business use of the home

 

You can only use simplified expenses if you work for 25 hours or more a month from home.

 

Hours of business use per month                                                                        Flat rate per month

25 to 50                                                                                                                     £10

51 to 100                                                                                                                   £18

101 and more                                                                                                           £26 

 

The flat rate doesn’t include telephone or internet expenses.