The Government has announced its intention to adopt a number of proposals made by the Office of Tax Simplification (OTS) aimed at small business.
The Government has indicated that the proposals should apply to unincorporated businesses with a turnover up to the VAT threshold of £77,000 and that they should continue to apply to businesses whose turnover grows to £150,000. Many in the profession are surprised by the boldness of the proposals and believe they may need to be watered down somewhat.
The major change proposed is that from April 2013 businesses within the turnover limit decided should be able to prepare their accounts on a receipts and payments basis. This will reduce the time spent on adjusting receipts and payments to conform to GAAP standards that make very little difference to the final figures. The adoption of this proposal would reflect the fact that an estimated 50% of all business accounts are already being prepared on a receipts and payment basis.
Another significant change is the Government’s proposed removal of capital allowances. Claims for capital allowances by small businesses rarely exceed the annual investment allowance limit of £25,000 and the vast majority of claims by businesses with a turnover of less than £30,000 are for £3,000 or less. There are not, as yet, any specific proposals concerning capital allowances for cars but the Government has indicated that it will allow the use of flat rates for certain expenses such as motor expenses, as well as for use of home as office claims.
The Government’s proposals are out for consultation until the end of the year and it is anticipated that legislation will be brought in from April 2013.
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