As a self-employed individual you often have the option to calculate your profits based on a cash basis. This differs from the regular accruals basis. If you own a business or are self-employed in the Glasgow area then it is a good idea to find out if the cash basis legislation will best suit you.
Difference Between Accruals and Cash Basis
In the accruals basis, credit sales are part of the accounts income even when the customer may not have completed the payment for the service or goods by the end of the period of accounting. In cash basis, you are taxed on your cash receipts minus any applicable cash payments. So the sale is counted in the year it is paid for, not the year the transaction is made, according to accountants in glasgow.
Eligibility for Cash Basis
You need to have an unincorporated business to be eligible for cash basis, and have receipts in the qualifying period that are less than the entry threshold. Once you have started on the cash basis route you will generally have to stay on this path until your business is too big or your circumstances change.
What Are Cash Receipts?
A cash receipt is any cash receipt you get that is within the accounting period. If you have a customer that does not pay this by the end of the accounting period then it will be carried over to be taxable in the next year’s accounts.
What About Deductions?
Any expenses which are being claimed as deductions must also be paid within the accounting period. And they must have been only made in the course of business trade.
Interest Payments Relief
You have a maximum limit of up to £500 on business loan or business overdraft interest payments. If you are operating with a larger loan and you want to make a bigger deduction in terms of interest, you will need to prepare your accounts on the accruals basis and not on the cash basis.
Losses and Restrictions
In terms of the cash basis you can only carry losses forward, and they cannot be set off sideways or carried back in order to be used against other income.
For more information and the proper procedures as they relate to your own business, consult a specialist accountant in Glasgow to get the bigger picture and all the specific detail for you.
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