Small firms’ simpler bills

The way that small businesses calculate their tax bills is set to change radically from next year, under proposals introduced in the Budget to simplify the system.

The Government is to introduce a new scheme which will allow an estimated 3 million small businesses which have turnovers of up to £77,000, to move their accounting from the current accruals method to a cash-based one from April 2013.

The taxable turnover threshold proposed for small firms by Chancellor George Osborne is double what the Office of Tax Simplification (OTS) initially recommended for cash accounting.

The new system is designed to tax companies based on the cash that passes through their businesses, which will, in theory, dramatically simplify how small firms fill in their tax returns.

But cash accounting for small businesses has been tried before and not everyone is convinced.

Adam Stronach, a director at the accountancy firm Harwood Hutton, said: “At a time when there is considerable debate about whether paying tradesmen in

cash facilitates abuse of the tax system, it seems strange that measuring profit by reference to receipts is being considered, as it opens the door for manipulation by the unscrupulous.”

The Government will publish a detailed consultation on the move to cash accounting next month.

The OTS had said that firms generating less than £30,000 a year should benefit from a move to cash accounting.