Self-employed entrepreneurs and business partners across Shropshire need to take action now if they are to be prepared for potentially confusing tax changes.
DY’s Martyn Bramwell, said HM Revenue and Customs was in the process of changing the rules that decide at what point trading profits become subject to income tax.
“There are changes to the rules on the horizon, but they will only affect businesses which draw up their annual accounts on different dates, rather than the more typical 31 March or 5 April year-end dates.
So if your account year-end is more unusual, and outside the more commonly-acknowledged annual dates, it is vital that you take advice from your accountant as soon as possible.”
Martyn said from April 2024, the existing rules were due to be abolished and set to be replaced with an assessment based on the current active tax year.
“At the moment, the profit or loss calculations for a business involve the figures for the year running up to the accounting year-end date – often referred to as the current year basis.
But the changes will mean – regardless of someone’s year-end date – they will be taxed on the profits arising in the actual tax year.
Potentially this could cause some confusion and businesses could well find themselves paying tax on very different levels of profits on the tax year versus the accounting year.
Tax payers must ensure they are fully-acquainted with the changes or they could face being caught out, and any problems could lead to crippling cash flow issues which could prove extremely serious.”
Martyn said 2023/24 should be considered as a transitional year for tax purposes.
“In fact, the rules may prove to be quite complex and it may well be worth speaking to your accountant about altering your year-end date during the preparation of your 2022/23 tax return to get ahead of the process.
But this will only work for your business if it is feasible in the scheme of your day-to-day operation and if it is a tax efficient move for you.”
HMRC has said that the reforms are being introduced to create “a simple, fairer and more transparent” set of rules for the allocation of trading income tax years.
Martyn said that some businesses who used a date other than 31 March or 5 April as their year-end point would need to pro-rate their results and may need to use provisional figures when filing their tax returns until the transition was complete.
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DY’s Tax Manager, Martyn Bramwell