- June 24, 2020
- Posted by: mardenco
- Category: Income Tax
The cash basis scheme helps many sole traders and other unincorporated businesses who benefit from a simpler way of managing their financial affairs. The scheme is not open to limited companies and limited liability partnerships. The scheme allows qualifying businesses to use the cash basis when recording income and expenditure. However, some small businesses are more suited to using the cash basis than others.
If a business falls within any of the following categories, the cash basis may not be the best option:
- want to claim interest or bank charges of more than £500 as an expense
- run a business that is more complex, e.g. have high levels of stock
- need to obtain finance for the business – a bank could ask to see accounts drawn up using traditional accounting to see what the business owes and is due before agreeing a loan
- have losses that the owner wants to offset against other taxable income (sideways loss relief)
In a nutshell, the scheme is most suitable for straight forward businesses especially those that provide services. Businesses must have a turnover of £150,000 or less to join the scheme and can continue using the scheme until the business turnover reaches £300,000.