- Foxmain Associates
Government announces simplified tax reporting for self-employed and small businesses
Updated: Sep 15, 2021
Reforms to the tax system aim to make it easier for self-employed workers and small businesses to fill out their returns have been announced by the Government.
The changes, which will come into force by 2023 have been drawn-up alongside representatives of small businesses, will mean businesses will be taxed on profits arising in a tax year, rather than profits of accounts ending in that tax year.
It will align the way self-employed profits are taxed with other forms of income, such as property and investment income.
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 ended 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 year on the period to the end of the tax year, and then in subsequent tax 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.
Financial Secretary to the Treasury, Jesse Norman said:
"These complex rules lead to thousands of errors and mistakes in self-employed tax returns every year."
"Simplifying them will allow self-employed people to spend less time doing tax admin and more time growing their business and creating jobs."
The change to the time periods against which businesses report their tax will also reduce the number of times those with several sources of income will need to report their income under MTD for Income Tax.