A Shropshire accountant says more than three million small businesses are set to benefit from simplified tax rules.
Martyn Bramwell, from Dyke Yaxley Chartered Accountants, in Shrewsbury, said the Government had opened up consultation on its plans to simplify the income tax system for businesses with a turnover of less than £77,000.
“This move follows the review earlier in the year by the Office of Tax Simplification that proposed small businesses with a turnover of up to £30,000 should be eligible to pay tax on cash profits rather than full accounts.
“Now the Government is considering extending this to match the VAT registration threshold.
“This will mean self-employed sole traders, or anyone in a partnership with a turnover of less than £77,000 for 2012/13 will be eligible – there may even be a further extension providing sales reach no more than £150,000 a year.”
Martyn said small businesses and sole traders currently had to comply with the same rules for working out profits and the amount of tax owed as multinational corporations.
“But if the rules are simplified for small businesses, it is estimated that more than three million companies in the UK will benefit.”
Martyn said under the new proposals, small businesses would be taxed on a “cash basis” rather than the lengthy calculations that apply to bigger businesses.
“This would mean tax would only be paid when cash was received, and tough administration burdens would be removed including eliminating the need for stock records and understanding capital allowances.
“Expenses would also be made less complicated with a clear distinction between business and personal expenses.
“This move would bring in a standard rate for claiming expenses such as mileage rates for business use of cars, and a flat rate expense for business use of homes and personal use of business premises.”
Martyn said the consultation document was open for comments until June 22, and as long as no serious concerns were raised, the cash accounting approach is likely to be brought in for firms trading up to the £77,000 VAT threshold from April next year.
Dyke Yaxley’s Martyn Bramwell