Treasury would take £420m hit from cash accounting

THE TREASURY would take a £420m hit from the introduction of cash accounting for SMEs, the taxman has revealed.

Launching the consultation into allowing small businesses to pay tax based on their cash position, Treasury receipts fall by £420m in 2014/15, according to HM Revenue & Customs impact assessment. The following year would see a £120m increase in receipts. Ensuing years would see Treasury receipts increase by £20m per annum.

Alongside the introduction of cash accounting, simplified arrangements for business expenses, known as 'simplified expenses', would also be introduced. The cash basis and simplified expnses would then be used to calculate taxable income.

Where expenses are difficult to split out between personal and business, for example when someone works from home, then a flat rate will be applicable.

"It is not intended to deliver rules to suit every small business as this would constrain the design and limit the simplification," according to the consultation document.

The consultation finishes on 22 June.