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A number of concerns have been raised concerning the Chancellor’s announcement that cash accounting was to be introduced for small businesses. George Osbourne has suggested that cash accounting for small businesses which aren’t incorporated may help the companies calculate their tax bills. However, a number of issues have been raised, suggesting that the promise of cash accounting may not deliver all it promises.

The new cash basis for accounting will be introduced from April 2013, with a government consultation taking place to define the scheme details. This will include the possibility of businesses up to the VAT threshold being eligible, currently £73,000 but likely to be increased to £77,000 in October. According to the government, the proposals will be beneficial for up to three million businesses that will be able to calculate their tax liability and bills in much less time.

However, one accountant considers that the measure may not be a simplification in all cases. For instance, when preparing year end accounts, cash accounting for VAT may not be suitable. The selection of the threshold for VAT was also questioned, rather than the government making businesses with a turnover up to the higher rate threshold for tax eligible. The opposing view is that a business is unlikely to have employees below the VAT threshold, and therefore cash accounting may work.

Concerns may occur when a business requires accounts which are prepared on the accruals basis, perhaps to apply for a bank loan. A small business accountant would have to ensure records were in order before preparation of year end accounts.




About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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