Reforms to the tax system, which will come into force by 2023, make it easier for small businesses to fill out their returns.
Businesses will be taxed on profits arising in a tax year, rather than profits of accounts ending in the tax year.
It should help them spend less time filing their taxes, especially when a business starts and draws up its accounts to date different to the end of the tax year.
The declaration for self-employed income will be aligned with other forms of income, such as property and investment income.
The tax year basis
The ‘tax year basis’ would set the tax year as the basis of assessment, covering profits and losses arising from 6 April to 5 April each tax year.
The tax year basis WOULD NOT mandate a specific accounting date or period of account for businesses.
Businesses would be free to choose any period of account without having to consider the basis period implications, and so would gain greater flexibility in drawing up their accounts for the period that suited them commercially.
The tax year basis could simplify Making Tax Digital for Income Tax for businesses.
Aligning MTD quarterly updates for trading income to the tax year would align quarterly reporting for trade and property income, significantly reducing the number of different reporting dates that taxpayers with both forms of income have to consider for MTD throughout the year.