Government announces simplified tax reporting for self-employed and small businesses
On Tuesday 20 July 2021, the UK government confirmed that adjustments will be made to the tax system, making it easier for small businesses and the self-employed to complete their tax returns.
Under the current system, tax returns filed by the self-employed, sole traders and partnerships are based on a firm’s set of accounts ending in the tax year which finishes on April 5. 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 based on their full accounting year – meaning profits are taxed twice and complex rules apply to relieve the double taxation.
These rules can be confusing to understand, particularly for new businesses. More than half of those affected do not claim relief they are entitled to and could pay tax twice.
The changes, which will come into force by 2023, will mean businesses will be taxed on profits arising in a tax year, rather than profits of accounts ending in the tax year.
It should help self-employed people spend less time filing their taxes – aligning the way self-employed profits are taxed with other forms of income, such as property and investment income. The new system is easier for businesses to understand and will prevent thousands of errors every year.
Clampdown on avoidance
The government is also looking to clamp down on promoters of tax avoidance schemes. Measures announced will be legislated for in the next Finance Bill (2021/22), and will:
- Tackle offshore promoters through hitting any associated UK entity with harsh penalties.
- Help taxpayers to steer clear of tax avoidance schemes, or get out of tax avoidance quickly, by giving them more information on what is being sold to them.
- Clamp down on promoters who hide their assets, ensuring HMRC can protect its revenue and secure a promoter’s assets to pay any relevant
- Give HMRC tougher powers to shut down promoters that continue to promote schemes and sidestep the rules designed to restrict their activities.
If you have any questions or wish to stay updated with important changes from HMRC, please feel free to pop in to our office in Beckenham or contact us on 0207 249 6007.
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