News

April 26, 2013

HMRC simplifies tax filing for small firms

HMRC has introduced two simpler income tax schemes for small businesses – Cash Basis and Simplified Expenses – designed to make it easier for small businesses to do their income tax. 

For the 2013-14 tax year onwards, this means that small, unincorporated businesses with income that does not exceed the VAT registration threshold (currently £79,000 per annum) can choose to be taxed on the money that actually flows into and out of their business (the Cash Basis), rather than using normal accounting rules. This will avoid the need to make year-end adjustments, required under current rules.

All unincorporated businesses can also choose to use fixed rates (Simplified Expenses) to work out what they can claim for some common types of business expenses where there is a mix of business and private use. Until now, businesses have had to work out the actual amounts that related to business use. Three types of expenses are covered:

Motoring expenses: businesses will be able to claim a standard mileage allowance based on the number of business miles travelled during the year.

Expenses relating to business use of home: businesses can claim a flat rate based on hours spent conducting business from home.

Adjustments for private use of business premises: a flat rate can be used for the private use portion of costs where someone lives at their business premises (such as a bed and breakfast).

Cash Basis and the Simplified Expenses are optional, and businesses can choose any or all of the schemes which best suit their needs. More guidance is available on the Gov.uk website.

HMRC gets tough on penalties

Meanwhile, independent finance provider Syscap reports that HMRC has almost doubled its use of powers to seize businesses' assets in order to settle late VAT bills in the past year.

It says that HMRC used these powers, known as distraint, 4,746 times to speed up the payment of VAT last year, a 98% increase on the 2,401 times it used these powers the previous year.

In addition, HMRC has warned that from 1 May, it will charge a £10 daily penalty for each day an online return is late, up to a maximum of 90 days. This is in addition to the initial £100 late-filing penalty for missing the 31 January filing deadline.

For paper returns, daily penalties started on 1 February, as they were due by the earlier deadline of 31 October. Looking ahead, further penalties of at least £300 (or 5% of the tax due, if that is more) will be issued for returns that are six and 12 months late.