CASH ACCOUNTING for SMEs has been championed by business network the Institute of Directors, which says the system more closely reflects non-accountants’ understanding of profit.
Commenting on the Office of Tax Simplification’s discussion paper, A simpler income system for the smallest businesses, the body argued: “Many small businesses probably already use cash accounting, without the Revenue’s noticing.”
Some accountants have dismissed the idea, saying accruals accounting is so deeply ingrained that it would be more complicated to take a retrograde step to an ostensibly simpler system.
Danielle Stewart, business services partner at Baker Tilley, noted all accounting software is geared towards accruals, saying for this reason alone, cash accounting makes little sense.
Calling the OTS paper “a good start”, IoD head of taxation Richard Baron said: “Cash accounting is definitely the leading option. It is crazy to continue as now, and require thousands of people running small part-time businesses to grapple with the technicalities of accountancy.”
The ATT had previously expressed concern that the legislation was overly complex and created unnecessary complications within the practical working of the new allowances
Introduced in 2013 to encourage R&D investment, the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents
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Yet, KPMG’s annual survey shows that the UK is still an attractive place to do business, despite falling in rankings in tax competitiveness and FDI appeal