HMRC Intoducing changes form 2022 for the self employed

The accounting and taxes fields have seen a slew of changes over the past year and a half, particularly in the United States. However, with HMRC keen to implement more changes for the self-employed starting in 2022, many business owners are concerned about what these changes may imply. After all, no business owner wants to take the chance of being investigated by HMRC for failing to comply with the applicable legislation and regulations. In reality, HMRC is contemplating reforms that will ultimately have the greatest impact on the income tax related payments made by sole traders and partnership firms, among other things.

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What is the reason for the change?

After all of the changes that have already taken place, one has to question why the HMRC is implementing even more modifications. This time around, it appears that the emphasis is on Making Tax Digital (MTD). The modifications are intended to improve the synchronisation of MTD filing dates with other deadlines. When they go to file their HMRC tax return for the next tax year, 2022-23, they may find that their tax costs are slightly higher as a result of this.

The current state of affairs

The accounting date (or yearend date) of a business is currently different from the tax year; nonetheless, when it comes to income tax payments and the consideration of earnings for the purposes of tax relief, the tax year is taken into consideration. Long-term, this can result in profits overlapping, as the same earnings will be considered twice in some cases.

What exactly is the reason for the change?

The HMRC now wants to standardise things so that the tax year becomes the primary reference point when it comes to calculating income tax for the year in question. A company may be able to specify the date on which its accounting records are to be kept. All tax calculations, on the other hand, will take the tax year into consideration rather than the calendar year.

Who is going to be impacted by the changes?

This change will have an impact on businesses that are not incorporated and whose accounting period does not expire between the dates of March 31st and April 5th. As a result, there will be a significant number of affected enterprises in the marketplace.

How have things turned out so far?

We can use the example of a company whose fiscal year ends on April 30th to illustrate our point (thus, exceeding the 5th April period timeframe given before). As a result, the accounting period and income tax collection are both based on the date of April 30th. When it comes to the HMRC tax return for 2021-22, the profits considered would be those earned up until the 30th April of that year. 2022-23 is designated as the transitional year since it occurs after the first transitional year. At that point, the tax-year basis will be implemented, and profits earned throughout that accounting year up to and including April 30, 2022 will be required to be included in the tax return, as would profits earned between the dates of 1st May 2022 and 5th April 2023.

As a result, if you go to see a doctor, the profits from twenty-three months are considered, and they can be spread over a period of five years if necessary due to transitional relief provisions.

What actions may business owners take?

Although business owners are not required to change their accounting period, it is vital to recognise that this shift may cause filing deadlines to become more difficult to understand. They would be best served by contacting the HMRC to inquire about any overlapping tax relief that may be available to them.

After reading the post, if you have any questions about accounting, please do not hesitate to contact Cruseburke Accounting Services.