The Chartered Institute of Payroll Professionals
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Simpler tax reporting for self-employed and small businesses 21 July 2021
On 20 July 2021, the government confirmed that changes will be made to the tax system that will make it easier for small businesses and the self-employed to complete their tax returns.
The reforms will be implemented by 2023 and will mean that businesses will be taxed on the profits that are made in a tax year, as opposed to the profits of accounts that end in the tax year. It is hoped that less time will be spent filing taxes and the changes will bring self-employed profits in alignment with other income types, including property and investment income. At present, tax returns that are filed by the self-employed, sole traders and partnerships use the set of accounts ending in the tax year on 5 April. Where businesses start and draw up accounts to a date that is not the same as the end of the tax year, more complicated rules apply. In these scenarios, taxpayers pay tax for the first year on the period to the end of the tax year, but in following years, the tax is paid on the full accounting year. This means that profits are taxed twice and when businesses finish, relieving the double taxation can be onerous.
Due to the complexity of the rules, thousands of mistakes are made in tax returns. It is estimated that over half of those who are affected by this do not claim the tax relief they are entitled to.
An example of what the changes will mean is provided below:
A business draws up accounts to 30 June each year.
At present, income tax for the year 2023- 24 would be based on the profits in the business’s accounts for the tax year ended 30 June 2023.
The reforms would mean that the income tax for the year 2023-24 would now be based on: 3/12 of the income for the year ending 30 June 2023, plus 9/12 of the income for the year ending June 2024.
The change to the time periods for reporting tax will mean that businesses with various sources of income will see the number of times they are required to report their income under Making Tax Digital for Income Tax reduced.
A consultation on how to implement a simplification of the way trading profits of businesses are allocated to tax years under Income Tax Self Assessment.is currently running.
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HMRC’s Customer Charter 27 July 2021
HMRC outlines what its customers can expect from HMRC, and similarly what HMRC expects from its customers in the HMRC Customer Charter.
Payroll professionals may not be aware of the Charter’s existence but should familiarise themselves with it as it defines the service and standard of behaviour that should be expected when communicating with HMRC. There are additional principles of support for customers who require extra help.
HMRC’s senior leaders discuss the Charter i n a YouTube video.
HMRC’s main aim is to collect tax that is spent on the UK’s public services. In addition to this, it should help its customers in meeting their tax responsibilities, whilst also ensuring that they receive any benefits, tax credits, refunds,
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