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Cash basis
As announced in the 2012 Budget, small businesses, those with receipts not exceeding the VAT registration threshold, will be able to use the cash basis, rather than accounts prepared on an accruals basis, when calculating their taxable profits.
The change will mean firms will not need to adjust for debtors, creditors and stock, and they will generally not have to distinguish between revenue and capital expenditure.
Cash basis
As announced in the 2012 Budget, small businesses, those with receipts not exceeding the VAT registration threshold, will be able to use the cash basis, rather than accounts prepared on an accruals basis, when calculating their taxable profits.
The change will mean firms will not need to adjust for debtors, creditors and stock, and they will generally not have to distinguish between revenue and capital expenditure.
Capital allowances will remain available for expenditure on cars only. Barristers eligible for the allowances will be able to choose between the new cash basis and simplified expenses or the current accruals basis.
The existing cash basis legislation for barristers will be repealed, except for those already using it, for the remainder of their qualifying period.
After consultation on the draft legislation in December 2012, HMRC have made changes to the simpler income tax legislation:
- Businesses using the cash basis will be able to continue to do so until their business circumstances change so that the cash basis is no longer suitable. The original idea was to allow unrestricted choice between the cash and accruals bases from year to year.
- Businesses using the cash basis will not have to use flat rate expense deductions when using a car for business purposes. Instead, they will be able to claim capital allowances and relief for a proportion of the actual costs incurred in the usual way.
- The legislation will be simplified.
For simplified expenses, the rules will allow all unincorporated businesses to choose, on a simplified flat rate basis, to deduct:
- motoring expenses for cars, motorcycles and goods vehicles;
- business use of home; and
- private use of business premises.
Yvette Nunn, president of the Association of Taxation Technicians, said, “The draft legislation for a simpler system of income tax for small businesses had many features, which made it look very unattractive. The changes go some way to salvaging the concept. We welcome in particular the abandonment of the mandatory use of fixed-rate motoring expenses, which could have been a stumbling block for many potential users of the proposed scheme.”
Nunn praised HMRC’s decision to scrap the “idea of traders who take an item from stock for personal use having to account for the profit they would have made if they had sold the item. This idea (the Sharkey v Wernher principle) is difficult to explain and apply in a complex business. It had no place in a simple system.”
The measures will apply from the tax year 2013/14.
VAT
The annual turnover threshold for VAT registration will go up from £77,000 to £79,000 from April 2013. The deregistration turnover limit will go up from £75,000 to £77,000.
Stamp duty
Legislation will be introduced in Finance Bill (FB) 2014 to abolish the stamp duty reserve tax charge on unit trusts and open-ended investment companies in FA 1999, Sch 19.
Rob Mellor, PwC asset management partner, said the asset management industry had been asking for the change for some time. The move would “level the playing field with other European fund locations and should help encourage more UK and non-UK asset managers to launch UK-based fund products”.
The government also plans to stop the 0.5% stamp duty charge on shares quoted on growth markets such as the Alternative Investment Market (AIM) and the ISDX Growth Market.
John Cooney, Ernst & Young tax partner, suggested the measure would encourage further interest and investment in AIM companies. He added, “The half per cent may help fund managers buy into more established AIM companies.”
Admin
A consultation will take place on a proposal to follow up court decisions in HMRC’s favour in avoidance cases, with legislation planned for inclusion in the 2014 FB. It will require taxpayers who have used avoidance schemes that are defeated in another party’s litigation to acknowledge to HMRC that the judgment applies to them and amend their returns accordingly, or confirm that they stand by their original return. A tax-geared penalty would be charged, subject to safeguards, if they failed to take reasonable care.
The government will consult on improving collection of tax debts through the PAYE system, including increasing the size of debts that can be recovered through coding-out from those with higher incomes. Changes will be made through secondary legislation.
The National Audit Office will be required to report direct to the Scottish parliament annually on HMRC’s administration of the Scottish rate of income tax, to be introduced in April 2016. The legislation, which will be in the 2014 FB, will ensure the auditing and reporting arrangements envisaged during the passage of the Scotland Act 2012 can be fully implemented.
The 100% first year allowance is to be extended for an additional three years to 31 March 2018 (with legislation in the 2014 FB) for expenditure on cars with low carbon dioxide emissions and electric cars.
The carbon dioxide emissions threshold, below which vehicles are eligible for the allowance, will be reduced from 95g/km to 75g/km. The complementary 100% first year allowance for gas refuelling equipment will be extended to 31 March 2018. The case for extending the allowance for cars beyond April 2018 will be reviewed in 2016 alongside a review of the 130g/km main rate threshold.
