There is a proposal to allow very small businesses to account for their profits on a simplified, cash basis.  There are many who would laugh at the association of  ‘cash’ with any form of accounting.  There are many people who deal with their own tax affairs and accounts without the help of professional advisers.  It would be interesting to know how many of them recognise the concept of accrual based accounting.  I suspect the proposed simplified basis is already in common use, and, in fact, for many very small businesses the accruals basis would, in any case, create the same result.

The emphasis should not be on the method of accounting at all.  It should be on the responsibility for accounting for profits, by whatever means.

The tax system is hugely complicated, partly because it strives to create fairness in how people contribute.  Unfortunately the complications contribute largely to its unfairness.  The more wealthy can employ schemes to avoid their intended contributions.  At the lower end of the scale the workforce, highly or lowly paid, has little scope for reducing or avoiding their tax and National Insurance liabilities.  Many employees earn no more or less than the proprietor of a very small business.  They pay their taxes through the PAYE system without question.  They may complain, but they have little choice.  Is it fair on them to make it easier for the self employed (on whatever scale) to pay less than their fair share of tax?

The comparative ‘freedom’ of self-employment carries with it the responsibility for the self-employed to account for what they do and to make a corresponding contribution to the country’s funding.  Acounting for what they do should not be made easier because accounting is difficult, – it isn’t.  They should be educated to make it a normal, accepted responsibility.  If they cannot cope with the simple recording of income and relevant expenditure, they should not be allowed to self-assess.

Any other basis would be too expensive to administer.  The present system is increasingly driven by fear because it is too expensive to police properly (much like the rest of society).  So what’s the answer?  I’m an accountant and, as usual, have absolutely no idea – but I do know that when there is something to be taken advantage of , there is never a shortage of participants.

This entry was posted on Friday, September 23rd, 2011 at 1:54 pm and is filed under DPM. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.