Having carried out a short, informal consultation with some businesses and tax experts, the Government intends to implement its proposed reform ahead of Making Tax Digital for those below the VAT threshold. The period of consultation has now ended and an announcement as to whether these plans will go ahead will be announced later in the year.
So what does this mean in practice?
Under the current system, tax returns filed by the self-employed, sole traders and partnerships are based on a business’s set of accounts ending in the tax year (April 5). Under the new proposed system, the self-employed will be taxed on the profits in any tax year, so may mean they need to look at changing their year end to remove complexities in calculations.
Whilst it will eliminate the complexities of overlap relief, it also takes away the freedom of the self-employed to choose a basis period. Some businesses are seasonal and having a year-end forced on them will add to their burden.
It could lead to increased costs for the self-employed as they will need to work with their advisors during any transition period and change their administrative systems to cope with new reporting requirement.
Some businesses who are VAT registered will have to look at their period ends, and potentially get them realigned with the new periods. Again, an administrative burden to them.
Jill Evenden says of this proposal “Whilst I can see the benefits of this in some ways (overlap profit calculations are often forgotten by some advisors and self-employed people who do their own tax returns) it’s just another step for HM Treasury to diminish the flexibility of the self-employed person. We are already going to see Making Tax Digital reforms coming in and now, if these proposals are implemented, it will remove some of the benefits for the self-employed and may well increase administration and accountancy costs during any transitional period. For some seasonal businesses this could prove to be very inconvenient to them. We will do our utmost to help our clients who are affected by this and keep them informed.”
The Government has already announced plans to mandate Making Tax Digital for unincorporated businesses and landlords with an annual turnover over £10,000 from April 2023.
For any advice and to discuss this further, do contact Jill at email@example.com