It’s Tuesday!
The perfect day to talk Tax.
Read this week’s short Tax snippet for doctors and dentists, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – in fact, you can read it whilst the kettle boils for your morning coffee!
What is Cash Accounting?
Normally, taxable profits are worked out based on Generally Accepted Accounting Principles (GAAP).
To cut a long story short, preparing your profit figure using GAAP methodology is long-winded and complex, although it is arguably the more accurate method.
It takes into account things like if you made a payment for a large expense just before the end of your financial year; GAAP would see to ensure that the expense is apportioned into the correct financial year it relates to.
For example: Your year-end is 31 March and on 1 February you pay your professional subscriptions to GDC / GMC. Ten months worth of this payment in fact relate to the following financial year.
Similarly, it takes income based on work carried out, rather than just payments received.
The alternative method is to use Cash Accounting, which is much simpler as it works out your taxable profit on income received and expenses paid, i.e. what goes in and out of your bank account.
Who can benefit from Cash Accounting?
Sometimes there is no getting away from the requirement to prepare your financial statements according to GAAP.
Cash Accounting is only available if you are self-employed, or, in a partnership. Receipts must also be less than the VAT threshold (currently £82,000).
If you need to determine whether you can use Cash Accounting to save you time and often tax too, speaking with a professional accountant is suggested.
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