Making Tax Digital

Accounting Web News Bite:

HM Revenue & Customs (HMRC) has produced a package of reform proposals to simplify the taxation of unincorporated businesses ahead of the migration to quarterly digital tax reporting.

The main plank of this simplification drive will be to raise the ceiling for the current cash basis mechanism that that allows businesses with trading income to calculate their tax liabilities based on amounts actually paid and received within a period.

It is currently available up to the VAT registration point of £83,000, but HMRC is consulting on raising it to as much as £166,000, double the existing figure. The popularity of the cash basis in its current form encouraged the MTD team to consider expansion, particularly since regular reporting updates will align more easily with the cash approach.

“Businesses who account this way will simply enter the details of their income and expenses as they actually receive payment or pay for an expense,” the HMRC consultation paper explained.

Doubling the upper limit would extend the cash basis option to another 175,000 business; those with higher turnovers are more likely to have complex tax affairs requiring accruals accounts for other purposes, it added.

An exit threshold at around twice the entry threshold is also being considered that would allow businesses with fluctuating turnovers up to £300,000 to continue to use cash basis accounting.