In response to HMRC’s consultation on expanding the cash basis for the self-employed, the CIOT raises concerns around eligibility and the default tax accounting position. The consultation included proposals to extend eligibility to more businesses by increasing or abolishing the turnover thresholds and setting the cash basis as the default position, based on the idea that the simplified regime could help more businesses spend less time filing their returns although, as the CIOT notes, many of those businesses already engage agents to deal with their returns.
Other concerns are that restrictions in the cash basis could deter eligible businesses from opting in – for example, the prohibition on offsetting losses against other income, and the maximum £500 deduction for loan interest for the period.
Applying the cash basis by default could risk various unintended consequences, including businesses using it by accident where the accruals basis would be more advantageous. It could also potentially lead to some businesses dispensing with the services of their tax agents or, conversely, result in currently unrepresented businesses appointing an adviser to provide guidance on the changes.
The CIOT suggests that the cash basis should not be made the default ‘without investigating and thereby fully understanding why eligible businesses are not currently using it’ until the loan interest and loss relief restrictions are addressed. Accruals basis accounting is also likely to more accurately reflect the financial position for businesses with turnover above the current threshold, given larger businesses tend to be relatively complex.
In response to HMRC’s consultation on expanding the cash basis for the self-employed, the CIOT raises concerns around eligibility and the default tax accounting position. The consultation included proposals to extend eligibility to more businesses by increasing or abolishing the turnover thresholds and setting the cash basis as the default position, based on the idea that the simplified regime could help more businesses spend less time filing their returns although, as the CIOT notes, many of those businesses already engage agents to deal with their returns.
Other concerns are that restrictions in the cash basis could deter eligible businesses from opting in – for example, the prohibition on offsetting losses against other income, and the maximum £500 deduction for loan interest for the period.
Applying the cash basis by default could risk various unintended consequences, including businesses using it by accident where the accruals basis would be more advantageous. It could also potentially lead to some businesses dispensing with the services of their tax agents or, conversely, result in currently unrepresented businesses appointing an adviser to provide guidance on the changes.
The CIOT suggests that the cash basis should not be made the default ‘without investigating and thereby fully understanding why eligible businesses are not currently using it’ until the loan interest and loss relief restrictions are addressed. Accruals basis accounting is also likely to more accurately reflect the financial position for businesses with turnover above the current threshold, given larger businesses tend to be relatively complex.
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