HMRC has issued a reminder that, from next April, the Government proposes to introduce a voluntary cash basis for small businesses. That is, most self-employed sole traders and those in partnership with other individuals will calculate their income tax side by side with simplified arrangements for some business expenses.

The consultation looking at the detail of the proposals was launched in March and responses were sought by 22 June.

Broadly, the proposals include a threshold so that small businesses with receipts of less than £77,000 would be eligible, and they would continue the cash basis until their receipts rose to more than £150,000 in any year. Small businesses with receipts of more than £150,000 in any year would not be eligible, nor would property businesses. Some other exclusions are also being looked at.

Any business using a cash basis would be required to use the simplified expenses method however it would appear that Companies and Limited Liability Partnerships would be excluded.

HMRC are stressing the proposals would mean, for these businesses, that there would be no need to keep complicated records (for example, stock, debtors and creditors), nor a requirement to calculate capital allowances or keep detailed records for certain key expenses (a standard rate would be used instead).

Under the proposals, the new, simpler scheme will be entirely voluntary and any business using the new scheme will be free to go back to the normal rules. Businesses will be able to choose the scheme that works best for them. The new cash basis would operate by reference to the tax year.

The consultation document gives more details and is available at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_031991