Simplified tax reporting announced

Reforms to the tax system that will make it easier for small businesses to fill their returns have been announced by the government.

The changes, which will come into force by 2023, have been drawn-up alongside representatives of small businesses.

The reforms will mean that businesses will pay tax on profits in the tax year that they actually occur.

HMRC says the move should help them spend less time filing their taxes – aligning the way self-employed profits are taxed with other forms of income, such as property and investments.

Under the current system, tax returns filed by the self-employed, sole traders and partnerships are based on a business’s set of accounts ending in the tax year (April 5).

More complex rules apply when a business starts and draws up its accounts to a date different to the end of the tax year.

HMRC says those rules can be confusing, particularly for new businesses, leading to thousands of errors and mistakes in tax returns.

More than half of those affected do not claim relief they are entitled to and could pay tax twice.

It says the new system will make it easier for businesses to understand and will prevent thousands of errors every year.

Announcing the move Financial Secretary to the Treasury Jesse Norman said: “These complex rules lead to thousands of errors and mistakes in self-employed tax returns every year.

“Simplifying them will allow self-employed people to spend less time doing tax admin and more time growing their business and creating jobs.”

The government has also announced plans to deliver on its commitment to clamp down on promoters of tax avoidance schemes.

The package of measures announced will be legislated for in the next Finance Bill.