The government has published draft legislation outlining simplified tax reporting for self-employed, sole traders, and partnerships in cases where the year-end does not fall on 31 March or 5 April. These proposed changes will affect GP partners and self-employed practitioners who are taxed under self-assessment.


What changes are being proposed?

Self-employed practitioners will be taxed on the earnings arising in the actual tax year spanning April to March annually, instead of the current position where they are taxed on the profits of the practice accounting year, which is not necessarily the same as the tax year.

For example, if your practice accounting year-end is 31st December, individuals are currently taxed on their profits for the accounting year to 31st December.  However, under the proposed new rules, the tax bill for the 2023/24 tax year will be based on 9 months’ worth of profits from the accounting year to 31 December 2023, and 3 months’ worth of profits from the accounting year to 31 December 2024.

In the transition year (the 2022/23 tax year), the individuals taxed under self-assessment in this example would be taxed on profits of the accounting year to 31 December 2022 plus 3 months’ worth of profits of the accounting year to 31 December 2023, however, individuals will be able to deduct ‘overlap profits’ (profits taxed twice in earlier tax years due to the tax rules). As a result, this will mean that the tax assessed in 2022/23 could be higher and therefore under the proposals, it is possible to spread the additional tax due over 5 years.


Why are these changes being proposed?

The aim is to simplify tax legislation and put an end to the creation of overlap profits where a non-31 March year-end is in place. The main driver behind this change now is the introduction of Making Tax Digital (MTD) for income tax, which is the government programme requiring electronic real-time, expected to be quarterly, reporting of profits to HMRC.

The final legislation is expected to be published later this year.


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Scott Sanderson

Partner, Sheffield

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