Wylie & Bisset highlights government intention to streamline tax return reporting for self-employed

Catherine McManus, Tax Partner at Wylie & Bisset

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CHARTERED accountants Wylie & Bisset has drawn attention to the government’s intention to streamline tax return reporting for the self-employed to a fiscal year basis that was buried away in the tax impact notes behind Chancellor Rishi Sunak’s headline Budget measures of last week.

While the Budget speech itself was relatively quiet on taxation measures, background documents set out much more content.

Tax partner Catherine McManus notes that proposed basis period reform seeks to amend the rules under which trading profits made by self-employed individuals and partnerships are taxed affecting unincorporated businesses that do not currently draw up annual accounts to 31 March or 5 April.

The new rules will come into force from 6 April 2024 with tax year 2023/24 being the year of transition. What this means for 2023/24 is that not only will the traditional accounting profits for that year be taxed, but also any additional profits from the end of the accounting period to 5 April 2024.

While brought forward overlap relief will be available for usage, most will see an advancement of tax on some of their profit base.

“Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date,” she said.

“Broadly, this will require apportionment of accounting profits into the tax years in which they arise.”

On the ‘tax grab’ in 2023/24, Ms McManus adds: “There are provisions in the legislation for any additional tax to be split over five years and the availability of overlap relief will help some, but, inevitably, there will be self-employed individuals who will feel the burden of the advancement of tax even when spread over five years.”

On other Budget measures, Ms McManus advised SME business owners to look out for the extension to 31 March 2023 of the increased Annual Investment Allowance of £1M, enhanced scope and wider incentives for R&D UK investment, and an extension of 30-day reporting to 60-day reporting for CGT on residential property for contracts concluded after Budget Day.

Wylie & Bisset urges Scottish taxpayers to seek professional advice on their tax affairs for further clarification.

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