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Cash Accounting for the Self-Employed

Written by Jon Cooper

If you are Self-Employed and running a small business, cash basis accounting may suit be a better option rather than traditional accounting.

Under Cash Accounting, you only declare money as it moves in and out of the business. As a result, at the end of the tax year, there will not be any Income Tax due on invoices sent to customers if they have not been paid in the period. However, you cannot claim for expenses unless they have been paid for.

In the following circumstances Cash Accounting would definitely not be the better option:

To qualify for the Cash Accounting scheme, you must run a small Self-Employed business either as a Sole Trader or in Partnership and have an annual turnover of under £82,000.

If you have more than one business, you must use Cash Accounting for all and the combined turnover must be less than £82,000.

However, you stay in the scheme until the total business income exceeds £164,000 per year. Thereafter, you will need to use traditional accounting for your next tax return.

Certain specific types of businesses are not eligible for the scheme:

Cash Accounting started from the 2013-14 tax year onwards. For an existing business to switch from traditional accounting would in all likelihood require some adjustments in the year of change.

Unlike traditional accounting, you claim other equipment you buy to keep and use in your business as a normal allowable business expense rather than as a capital allowance.

For VAT registered businesses, you can record your business income and expenses either excluding or including VAT. However, you must treat both income and expenses the same way.

If you choose to include VAT, you have to record:

If you would like to discuss your whether cash Accounting would suit your circumstances or have any questions, please contact welcome@cooperfaure.co.uk to arrange an initial free consultation.

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