As previously announced, new income tax rules have been introduced for small businesses known as ‘Simpler Income Tax’. The rules allow ‘cash basis’ accounting and ‘simplified (flat rate) expenses’.

As a result, individuals can choose to record their business income and expenses over the tax year in 1 of the following ways:

• using the cash basis – i.e. by recording money when it actually comes in and goes out of the business (all money counts - cash, card payments, cheque, any other method); or
• using traditional accounting (the accruals basis)

The cash basis is available to anyone who:

• is a small self-employed businesses (sole traders and partnerships) with an income of £79,000 or less in 2012–13.

The second measure of Simpler Income Tax allows all unincorporated businesses to choose to use flat rate expenses for particular items of business expenditure.

Readers should note that the following on from consultation, the draft legislation in Finance Bill 2013 for Simpler Income Tax has been revised to:

• keep the cash basis optional but limit the circumstances under which a business can leave it; and,
• provide for an adjustment on a ‘just and reasonable’ basis where an individual takes business goods for own use and not require businesses to align reporting with the tax year.