Tax Preparation Specialist Welcomes HMRC Changes to Tax Reporting Rules
Tax reporting rules for the UK’s self-employed workers are due to get simpler after HM Treasury announced reforms to the taxation system. These new rules aim to make tax reporting easier for self-employed, sole traders and small business and are part of a raft of new tax measures made in the announcement. David Redfern, tax preparation specialist and director of DSR Tax Refunds Ltd, welcomed the new measures as a step in the right direction for small businesses and the self-employed, still reeling from the Covid19 pandemic.
The simplified tax reporting rules were announced by HM Treasury on Tuesday 20th July and are aimed to simplify the way self-employed workers and small businesses report profits when there is a disparity between the end of the tax year (5th April) and the end of their own accounting year. Currently tax returns are based on the business’s set of accounts up to the end of the tax year. Redfern explained “Not all taxpayers have a financial year that sits in alignment with the tax year, meaning that they can end up being double taxed on profits because after their first trading year, profits are based on their full accounting year, not the tax year. Whilst there are rules for these affected taxpayers to claim tax relief on these double taxed profits, they are only applicable after the business finishes and are widely considered to be too complex to be fit for purpose”. HMRC estimates that more than half of taxpayers don’t claim the relief they are entitled to, and the complexity of the rules leads to thousands of errors in tax returns annually.
The new rules, which come into effect in 2023, align Income Tax with the year in which the profits were received. Redfern explained, “If a business has a financial year end of 31st July, from 2023, they will account for their profits proportioned over the tax years affected – so 4/12ths of the profits will be accounted for in that tax year and 8/12ths in the following tax year – so in the actual tax year the business receives the profit. This is a welcome step towards making the taxation system more supportive of small businesses and self-employed workers and, along with ensuring that these taxpayers claim all of their eligible tax relief, will help them build back stronger after the recent battering businesses have taken as a result of Covid19″.
Along with the simplification of tax reporting rules, the announcement by HM Treasury also included measures to clamp down on tax avoidance schemes, especially those based offshore. These measures also include providing taxpayers with more information to prevent them falling prey to the schemes as well as make it easier for them to leave such schemes if they have unwittingly entered into them. The measures also touched upon MTD (Making Tax Digital) for Income Tax, following the positive reception of MTD for VAT. Redfern stated, “It is a positive step forward for HMRC to make changes which support taxpayers appropriately, whether making their tax reporting simpler, supporting them with adequate information to avoid punitive tax avoidance schemes or improving digital services for businesses regarding tax. These measures all place the taxpayer as the central focus and ensure that the tax system works for those who need it most”.
Self-employed workers, especially those within the construction industry, who require assistance in utilising their full range of tax relief options for allowable expenses are encouraged to contact DSR Tax Refunds Ltd on 0115 795 0232 or through their website. The website contains a wealth of resources relating to allowable expenses as well as a handy tax refund calculator.
