The government have this week announced changes in a bid to simplify tax reporting that will come into force by 2023.
The changes will see small businesses taxed on profits arising in a tax year, rather than profits of accounts ending in the tax year.
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 (5 April). More complex rules apply when a business starts and draws up its accounts to a date different to the end of the tax year.
In those cases, taxpayers pay tax for their first tax year on the period to the end of the tax year, and then in subsequent years on the basis of their full accounting year, meaning profits are taxed twice and complex rules apply to relieve the double taxation when the business finishes.
These rules can be confusing to understand, particularly for new businesses, leading to thousands of errors and mistakes in tax returns. More than half of those affected do not claim relief they are entitled to and could pay tax twice.
Get in touch
If you have any tax-related matters you would like to discuss in the context of your own business, get in touch with our Tax team on 01788 539000 or 0116 261 0061.
Check out more of our blog articles here: https://www.magma.co.uk/blog.