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Our budget views in blue: Small businesses cash accounting

22nd March 2012

If a business is under the VAT registration threshold (£77,000) they can account and pay tax using a cash accounting scheme

This is probably our favourite bit of the budget and one we had been hoping for for years.

To explain: before, a company declares income as soon as the invoice is made – or before  – and pays tax on this. So it is entirely possible to pay VAT and Corporation  before you’ve received a penny (if you have customers who pay you late etc.) Of course there are rules where you can make adjustments after a certain period of time if it looks like you might not get paid.

 

But this is often burdensome and impractical.

 

To combat this VAT has a cash accounting scheme (i.e. you only pay VAT on money received). What we’ve never understood is why an equivalent didn’t exist for corporation tax. Now it does. Well done Mr Osborne.

 

A minor gripe: The cash accounting scheme threshold for VAT is £1.35m http://www.hmrc.gov.uk/vat/forms-rates/rates/rates-thresholds.htm) i.e. after this level of sales you can only account for sales on the invoice/accruals basis  so ideally the corporation tax threshold should be the same but this is still a very good step in the right direction.