Tax expert Des Desai outlines the new accounting system coming in in April for small businesses.
Simple tax is ridiculous and not promoted by sane governments in times of austerity. So what is “Simpler Tax for Very Small Businesses” being launched in April 2013? (Before hitting DELETE or CLOSE right now, reading this horrible topic might save you money)
Internally, HMRC call “Simpler…..” Cash Based Accounting or CBA – which in funky text speak stands for Can’t Be Ar^^d.
Paying cash to tradesmen is just “morally wrong” so perhaps it should be called ABC – Anything But Cash?
As cash is a politically tainted word, let's call it a “Money Out, Money In” or MOMI for short.
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What is it?
A less complicated way of working out tax if you are Self Employed or a Partnership. If you run a Limited Company, tough.
If you become self employed after April 2013 you are going to be steered towards MOMI. If you are claiming benefits such as the new Universal Credit (Working Tax Credit in old money) then you MUST use MOMI.
Under £154,000 turnover you have the option to go to MOMI or stay as you are. You can even flip-flop-flip from MOMI if you are utterly crazy or you have a thing about tax inspectors. If you hold stock, raise invoices and give and take credit and are VAT registered MOMI may still be right, but it's a good idea to look elsewhere.
Gone forever are terms that formed accountant’s fantasies (excluding VAT). Depreciation, Accruals, Capital Allowance, Balance Sheet, Sideways Loss Relief, Rollover Relief and Pain in the Neck Relief will only occur when you are far richer.
What's in it for me?
If you are one of those people who anticipate your tax bill as the reverse of a lottery win MOMI will allow you to keep tabs on your tax as routinely as cholesterol. Equally, your blood pressure will not go off the scale each time the taxman sends a begging letter.
You may also be able to permanently retire your accountant or, at the very least, put him on short time.
The pros and cons
There really isn’t any downside. Let me explain: the art of running your own business is keeping good records. Yet millions don’t do it. Some Can’t Be Ar^^d, but many are put off by lack of time, training, advice and raw fear.
HMRC and DWP have been working with a handful of companies on possible solutions to help people with MOMI. We are one of them and have created a free and simple record keeping service called www.text2savetax.co.uk.
www.text2savetax.co.uk works like this. You just text MOMI any time money changes hands and you can keep up to date with your accounts, cash flows and tax position and make better business decisions. At the end of the year you can choose to do your own tax return or pay less for an accountant to do the sums.
In a way HMRC are legitimising the way that many small businesses and tradesmen already operate and admitting that a lot of what an accountant does is un-necessary. Next year the personal tax allowance rises to £9,205. A simple business or trade with a profit expectation of £10-£15,000 should see this as an opportunity to save money and manage their business better. In fact, better record keeping might even result in significant -and legal – tax savings.
*Des Desai's company are tax specialists who exclusively serve self employed and buy to let landlords. Website: www.mrtaxsoftware.com. Email: firstname.lastname@example.org.
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