LSCA Business
Simplified tax reporting proposals for the self-employed
New proposals for ‘simplified tax reporting’ for the selfemployed will see the often complex ‘current year basis’ rules abolished, aligning the treatment of self-employed trading profits with that for other forms of income. Businesses will be taxed on profits arising in a tax year, rather than on profits of the accounts ending in that year.
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The Government is consulting on the detail of the proposed changes, with comments invited until 31 August 2021. For those businesses already adopting a 31 March or 5 April year-end, the impact should be minimal. However, with implementation proposed from 2022/23, others should act now to plan for the changes: • Some profits will be taxed earlier, creating cashflow challenges during the transition period as nearly two years of profits could become taxable in a single year. Spreading rules may mitigate the impact. • Relief should not be overlooked for ‘overlap’ profits from early years of trade. • Businesses with year-ends later in the tax year will may need to submit tax returns including provisional/ estimated figures, with amendment once finalised information is available. • Consideration should be given to implementing an effective software package for accounting and tax reporting, especially given the also upcoming introduction of Making Tax Digital for Income Tax. • Particular complication may arise for partnerships, where joiners/leavers are involved. In certain cases, incorporation may be worth considering.
