Simplified small business tax expenses

Small businesses will be able to account for their income and expenses using a simplified cash-based regime for financial years starting from 1 April 2013.

Basically, a business’s taxable profits will be the total amount of receipts less the total payments of allowable expenses, subject to adjustments required or allowed by tax law, for example on goods taken for personal use.

The new way of accounting includes a series of flat rate allowances for car expenses, use of home and interest payments.

These simplified expenses allowances will also be available to businesses that do not apply the cash basis. The cash-based scheme is voluntary and allows people to switch in and out of the cash basis.

Simplified expenses

Flat rate allowances have been devised for the following types of expenditure under the regime:

Car and vehicle expenses will be based on business mileage rather than deductions for actual expenditure on purchasing, maintaining and running a vehicle or motorbike.

The rate will be based on HMRC’s approved mileage allowance payments (AMAP), currently 45p a mile up to 10,000 miles, then 25p/mile, with 24p/mile for motorbikes.

Expenses relating to business use of home can be deducted for each month, according to the amount of time spent working at home: 25-50 hours per month – £10; 51-100 hours per month £18; 101 hours or more per month – £26.

Businesses will still have the option to claim any allowable portion of actual expenses. After consultation, an allowance of up to £500 will be available for interest payments.

The cash accounting rules also include a number of excluded persons and trades, including: companies limited liability partnerships managed service companies.

Payments for business entertaining, or purchases of long-lasting assets such as cars and properties are not allowable. Instead the taxpayer should apply the flat-rate expenses detailed above.

Would this be beneficial for your small business? It depends… give us a call and come in for a meeting.