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With cash basis you only count the money you’ve actually received in a tax year. Any money you’re owed isn’t counted until you receive it. All payments count - cash, card, cheque, payment in kind or any other method. You can choose how you record when money is received or paid (eg the date the money enters or leaves your account or the date a cheque is written) but you must use the same method each tax year
Expenses are business costs you can deduct from your income to calculate your taxable profit. In practice, this means your allowable expenses reduce your Income Tax. You only count the expenses you’ve actually paid. Money you owe isn’t counted until you pay it.
day to day running costs, eg electricity, fuel admin costs, eg stationery things you buy to sell on, eg stock things you use in your business, eg machinery, computers, vans interest and charges up to £500, eg interest on bank overdrafts
vehicles working from home making adjustments for living on your business premises There are some types of expenses that you can’t claim, eg anything that’s not used by your business.
If you buy a car for your business, you can claim the purchase as a capital allowance (but only if you’re not using simplified expenses to work out your business expenses for that vehicle). Unlike traditional accounting, you claim other equipment you buy to keep and use in your business as a normal allowable business expense rather than as a capital allowance. If you’re currently claiming capital allowances and want to switch to cash basis, HM Revenue and Customs (HMRC) have guidance on the changes you need to make.
Callie Timothy is an Accounting, Tax, Forensic, Compliance and Business advice firm in London and Cardiff providing value-driven services to businesses irrespective of their size and nature. a 21st-century accountancy firm that focuses on excellence and compliance. We support corporate, private and not-for-profit organisations across various sectors. With over 21 years of local and international business experience, we bridge the gap between the expectation of clients and the reality of time.Read More