Cash Basis ...confused!

[Rubybaby]

Hi all,
I've just started doing my online tax return and it's asked me if I want to file on a 'Cash Basis'...well, I have no idea!

My parents pay monthly in advance on the 1st of each month (I don't invoice), so when I'm doing my accounts up to the 5th of April, I've always only included one week's worth (or a proportion) of their monthly payment up to the 5th in that tax year.The remainder of that April payment is declared as income received on the tax return for the following year.
This has always made sense to me, as I use the PACEY accounts and attendance record books which break hours worked and everything else down weekly, so I'm assuming that I'm NOT actually using 'cash basis' for my accounts; the prospect of even thinking about changing the way I do accounts has thrown me into freak out mode.
I'd be really grateful if any of you could tell me WHAT I'm doing...(after 2 entire days on this ,I don't really know who I am anymore!! xx

[cathtee]

I'm sure I put cash basis on mine, and for the payment in advance I put the whole amount into the tax year as I have been paid it and it is my bank. Hope this helps

[Rubybaby]

I'm sure I put cash basis on mine, and for the payment in advance I put the whole amount into the tax year as I have been paid it and it is my bank. Hope this helps

Thanks cathtee,
That also makes sense! Please tell me I haven't been doing it wrong!!

[bunyip]

For the purposes of your question, there are 2 ways of doing accounting.

1. In 'Traditional accounting' the business accounts for income at the date on which it is invoiced (not the date the invoice is paid) and expenses at the date they are billed for (and not the date you pay the bill.) The company accountant then does a reconciliation to figure out the difference between this and the actual payments made/received, and could get the tax office to write off any bad debts, but that doesn't really concern us. The resulting figure showed how profitable a company was/wasn't, irrespective of how long the business (or it's creditors) took to pay their bills.

2. 'Cash basis' accounting is far simpler. You account for all transactions (i,e. income and expenses) at the date on which the money changes hands.

You are almost certainly doing your accounts on a cash basis. I expect the vast majority of CMs are doing the same. AFAICS there are only 2 logical reasons why a CM would be submitting figures based on 'traditional' accounting:-

Their turnover (income before deducting expenses) exceeds the VAT registration threshold of £81,000pa* (as Captain Sensible would say, "golly, baby, I'm a lucky cuss" :rolleyes:.)
They're paying an accountant through the nose to do far more work than is actually necessary.** :(


*HMRC won't let a business submit 'cash basis' accounts if they are liable for VAT, as it is all too easy for companies to tweak the books to reduce their VAT bill in this way.

**Cash basis is so simple that, many centuries ago, when I was an office minion in an accountants office in Darkest Essex, I was given cash basis accounts to calculate as light relief from making the tea and sharpening the quill-pens (if you think 'Muppets Christmas Carol' then I was junior to those rats that worked alongside Bob Kermit Cratchett. :rolleyes: ) Incidentally, accountants like not to be rushed: cos they're paid by the hour.... think on't....... :p

If you're doing 'cash basis' then you really don't have to work out which part of a payment falls in which tax year. The only thing it is worth breaking down week-by-week is things like utility bills. That's because you get them quarterly, but can only claim a variable proportion of the total, based on your actual working hours in any one week. Even then, HMRC are unlikely to fuss if you average them over a year. In short, CMs rarely make enough to keep tax inspectors awake at night worrying that we'll bankrupt the country over our tax liabilities.

It is, however, a lot simpler if you synchronise your own 'end of year' with the end of the tax year. Tbh, IIRC the pacey accounts book assumes you just do all the income/expenses in whole weeks anyway. Even if HMRC check such accounts, there's a good chance they'll figure that the difference will not amount to a whole hill of beans and let it average out from one year to the next.

[Rubybaby]

Thank you very much, Bunyip..great advice and that now makes much more sense! I'm very relieved that I'm not doing anything wrong, and when I go and complete my return, I'll tick the 'cash basis' box (I'd left it blank) and endeavour to be more organized next year, and not go into meltdown over a hot computer on new year's eve!!
I wonder if I could pick your brains (and hopefully not try your patience!) about pension contributions too? As it's a separate tax issue I could post it as a new thread.....?

[bunyip]

Happy to help, but I really don't have any insight into pension contributions in relation to income tax. I recall there is a section of the online self-assessment form where you enter pension contributions, but that's about the extent of my knowledge.

Honestly, I don't blame you for putting it off until now. Anyone doing cash basis can, by definition, fill in their self-assessment on 7th April. It's such a tedious task that I, like others, put it off and put it off in the hope that we might with any luck die before we have to face it - and always feel a little disappointed at this time of year that I'm still alive and have to do the wretched thing. :(

It's not made to be understood.

eg. Why on Earth does it ask me to describe the nature of my business, when my business name is "Forename Surname, Childminder" ??? then refuse to accept "childcarer" as a description?

Why, having told it I'm a CM, does it proceed to ask "are you a diving instructor or sharecropping fisherman?" - oh, yeah: the lo's hold onto the helm whilst I'm down below with the haddock and my diving pupils. :p

The best tip I can offer is to at least click in every empty box, or enter a "0" if it won't let you move on from a page when you click on "next". Don't get thrown by weird stuff either. Mine always tells me I owe tax from a previous year, then tells me the amount owed is £0 and how would I like to pay my £0. It then does the same routine, telling me they owe me £0 from a previous tax year and how would I like to receive it. It's bizarre.

[Ripeberry]

Happy to help, but I really don't have any insight into pension contributions in relation to income tax. I recall there is a section of the online self-assessment form where you enter pension contributions, but that's about the extent of my knowledge.

Honestly, I don't blame you for putting it off until now. Anyone doing cash basis can, by definition, fill in their self-assessment on 7th April. It's such a tedious task that I, like others, put it off and put it off in the hope that we might with any luck die before we have to face it - and always feel a little disappointed at this time of year that I'm still alive and have to do the wretched thing. :(

It's not made to be understood.

eg. Why on Earth does it ask me to describe the nature of my business, when my business name is "Forename Surname, Childminder" ??? then refuse to accept "childcarer" as a description?

Why, having told it I'm a CM, does it proceed to ask "are you a diving instructor or sharecropping fisherman?" - oh, yeah: the lo's hold onto the helm whilst I'm down below with the haddock and my diving pupils. :p

The best tip I can offer is to at least click in every empty box, or enter a "0" if it won't let you move on from a page when you click on "next". Don't get thrown by weird stuff either. Mine always tells me I owe tax from a previous year, then tells me the amount owed is £0 and how would I like to pay my £0. It then does the same routine, telling me they owe me £0 from a previous tax year and how would I like to receive it. It's bizarre.


Bunyip you make me laugh so much! You are a natural born comedy writer! :D

[bunyip]

Bunyip you make me laugh so much! You are a natural born comedy writer! :D

I make no claim to be funny (although Mrs B says I'm weird :rolleyes: )

It's Life that's hilarious - I merely observe and describe. :D

[Rubybaby]

Ha ha ha! Yes, I came across that £0 tax owed from previous year thingy too, but by then the entire form had beaten me into submission and I staggered bleary eyed into the new year with an incomplete tax return and a heavy heart!
However, you have a great way of putting things into perspective, Bunyip, and I'm not going to fret about the pension bit even though the pension company couldn't answer and suggested I contact the tax office themselves (who told me they'd have to get a 'technician' on it at a later date -none available at the time),and am applying good old fashioned common sense. Actually it's my OH's common sense....mine deserted me the moment I logged in!
Anyway, thanks a million, you guys...my sanity remains intact (if a bit tattered) x x