Simplified tax reporting – good news for sole traders?
HMRC plans to introduce simpler tax reporting rules by 2024 that it believes will save sole traders time and prevent errors in Self Assessment tax returns. The rule changes will mean sole traders (ie the self-employed,…
5 Minute Read
Last Updated: 11th November 2022
HMRC plans to introduce simpler tax reporting rules by 2024 that it believes will save sole traders time and prevent errors in Self Assessment tax returns.
The rule changes will mean sole traders (ie the self-employed, which includes many freelancers, contractors and agency workers) will be taxed on profits arising in a tax year, rather than on profits of accounts ending in the tax year. This will better align taxation of self-employed profits with other income, for example, from property and investment, says HMRC.
According to the government, simplifying tax-reporting rules will “allow self-employed people to spend less time doing tax admin and more time growing their business and creating jobs”. It believes the changes will make rules easier for businesses to understand, while helping to prevent thousands of Self Assessment tax return errors every year.
Cash Flow Benefit
The current system is less straightforward for sole trader businesses whose accounts period is different to the tax year (ie 6 April to the following 5 April). From 2024, they’ll be able to pay tax on profits in the tax year in which they arise, which could better suit many sole traders’ cash flow.
To aid understanding, HMRC has given the following example:
- “A business draws up accounts to 30 June every year. Currently, Income Tax for 2024/25 would be based on profits in the business’s accounts for the year ended 30 June 2024.
- “Our proposed reform would mean that Income Tax for 2024/25 would be based on: 3/12 of the income for the year-end 30 June 2024, plus, 9/12 of the income for the year-end June 2025.”
Making Tax Digital for Income Tax
The government believes the change is in tune with its drive to provide self-employed business owners with a “more modern, digital, integrated service” through implementation of its Making Tax Digital (MTD) for Income Tax initiative, which also seeks to “help reduce errors and ensure that self-employed businesses get their tax right first time”.
Changing the time periods against which businesses can report their tax will also reduce the number of times that those with several sources of income will need to report their income under MTD for Income Tax.
Make sure your tax returns are error-free
Simple mistakes are easily made when you’re filling out a tax return if you lack experience. If HMRC spots any post-filing errors, it creates more hassle for you. Our checking service can give you peace of mind from knowing our experts have looked over your tax return to make sure it’s as it should be.
Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.
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