In our March/April 2013 Tax eNews, we set out details on the “Simpler Income Tax for the Simplest Small Businesses” provisions which, in practice, will be anything but!
The new rules came in from April 2013 and allow certain businesses to use a cash basis rather than
accruals basis for preparing their accounts for tax purposes.
Whether or not a business uses the cash basis, it can also use the new fixed rate expense deductions from the same date, which may simplify record keeping requirements.
However, the new rules are complex and, in most cases, taxpayers will need to keep records under both regimes to consider which might be more appropriate.
The treatment of cars and motor vehicles is particularly complex and taxpayers have two options available to them. First, they may claim capital allowances and actual running costs, restricted to their business usage. Alternatively, a fixed rate deduction may be claimed at 45p per mile for the first 10,000 business miles travelled, and 25p thereafter in each tax year.
If a person claims a fixed rate deduction for using a car, they cannot claim any other deduction for expenditure on the vehicle either now or in the future, although a person may use different bases for different cars used in the business.
However, when applying the fixed rate deduction in respect of the first 10,000 business miles, this limit applies to the business as a whole and not to each individual car used and so this is unlikely to be attractive for businesses with multiple vehicles incurring total business mileage in excess of 10,000.
We would therefore recommend that clients continue to keep mileage logs as well as details of all actual costs incurred in order that a comparison between the two bases may be made
This is anything but simple!