On 20th July, the Government announced reforms to tax reporting designed to make the returns process easier for small businesses and the self-employed.
What are the current rules?
Under the current taxation system, tax returns filed by people who are self-employed, sole traders, and partnerships are based on the business’s end of year accounts. These rules become more complex if a business draws up its accounts to a different date to the official end to the tax year.
When this is the case, taxpayers pay tax for their first tax year on the period to the end of the tax year. For subsequent years, their tax will be based on their full accounting year. This means that profits are taxed twice. Although you might be able to relieve the double taxation when the business finishes, the rules for this are very complex.
As is evident, these rules can be very confusing, especially for new businesses, without the help of tax compliance services in Plymouth or Wellington like those TS Partners provides.
This confusion, in turn, can contribute to widespread mistakes and errors in tax returns. The intention with the new system is to make the rules easier for businesses to understand, thereby helping minimise errors.
What changes have been made?
The proposed changes will mean businesses being taxed on profits arising during a tax year, instead of profits of accounts ending in the tax year. In other words, the base period will be changed to the profits or losses that arise during the tax year.
The Government has stated that the overall objective of this new policy is to “simplify the taxation of trading profits. This is in line with stakeholder requests to simplify this part of the tax system.”
After a transition year from 2022 to 2023, the changes to the tax year basis will come into effect from 2023, in preparation and in line with the start of Making Tax Digital (MTD) for income tax self-assessment, which is presently set to happen in April 2023.
How might this affect your business?
These changes will bring self-employed profit reporting in line with other forms of income, and brings a welcome simplification to the filing of tax returns. Instead of having to file quarterly reports aligning with calendar quarters, self-employed businesses will follow the same rules as other businesses.
The simplification of the rules for filing tax returns could allow people more time to spend on growing their business and creating jobs, with less time having to be devoted to tax admin.
Enquire to our team about our tax compliance services in Plymouth or Wellington
For more information about how these changes will affect your small firm, start-up, or self-employed business, please get in touch with our experts. At TS Partners, we offer a range of tax-related services and advice, giving you the confidence you need to manage your tax affairs with ease.
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