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There will be a new optional basis for accounts for tax purposes. The mandatory accounting requirements for small businesses will be abandoned and small businesses will be permitted to choose either a full accounting basis for tax purposes, or a simple cash receipts and payments basis instead.
Consultation will be start on this in the next week or so, and businesses will be invited to comment on the proposals.
The proposals make it clear that standard allowances will be introduced for business use of home and of a car – likely to be 45p per mile for the first 10,000 miles and 25p thereafter to mimic the allowance for employees. Businesses can already choose to use this mileage rate if they are below the VAT threshold.
The allowance for business use of home is very likely to be £4 per week, in line with the amount employees can claim from April 2012.
The requirement to deal with capital allowances will be removed; indeed for most of the affected businesses the Annual Investment Allowance (AIA) of £25,000 would cover all of their capital expenditure.
The one possible distortion would be the purchase of a car which would normally attract a Writing Down Allowance of either 18% or 8% each year – but of course motoring will be covered by the per mile rate instead.
The proposals also note that the requirement to keep stock figures for tax purposes will end – a welcome help for some small businesses.
The OTS report suggested that this proposal should be available to very small businesses, but the Government has adopted the proposals with relish and stated that the new basis should be available for all businesses with receipts of up to £77,000 from April 2013. There will clearly need to be an anti-avoidance provision to prevent business splitting. Once businesses are within the scheme they will be permitted to grow up to receipts of £150,000 before being required to leave the scheme.
There is no doubt that this will be a popular proposal for business owners, but possibly not as popular with accountants and tax advisers.
Companies, as well as the self-employed will be able to opt for this simplified basis.
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