Reading Time | 2 mins 30th March 2023

Changes for taxpayers – where is “Hector the Inspector” this time around?

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Those of us who have worked in tax for many years may remember the cheerful little character Hector, an animated advertising image used by the then Inland Revenue to notify taxpayers of the sweeping changes to the tax system that were being brought in around 1996/97.

Now, here we are again facing a similar fundamental shake-up to the tax system – but times have changed ….. the Inland Revenue has now become HMRC, and the image of Hector looks more than a little outdated!! If you don’t remember him, look it up and you’ll see what I mean! Also this time, there’s no such helpful advertising from HMRC, leaving many unrepresented taxpayers potentially unaware of the big changes that are about to come into effect, and which could have a significant impact on forthcoming tax bills for many of the self employed.

Basis Period Reform

While the Government has listened to representations and has, thankfully, delayed the start date for Making Tax Digital for Income Tax until April 2026 (with a phased introduction), the snappily titled “Basis Period Reform” is still going ahead. And the transitional year starts in less than a month’s time – on 6 April 2023.

With little information coming from HMRC, many of the self employed who do not have accountants are likely to be unaware of the changes they need to make now, or of the effect on their tax payments from January 2025 onwards.

The changes will affect any sole trader or partner who currently has an accounting year end of anything other than 31 March or 5 April.

Accounting dates

Firstly, a decision will have to be made on whether to change their accounting year end to bring it in line with the tax year. Going forward, all self-employed profits will be taxed on a tax year basis, irrespective of the accounting date. It’s possible to continue with the current accounting date, and for some there will be good commercial reasons to do so, but this may involve submitting provisional figures to HMRC.  The question is – how many unrepresented taxpayers will realise they have to make this decision, or understand the implications?

The changes will also potentially bring forward tax payments, by taxing in 2023/24 to 2027/28 profits, which may not otherwise have been taxed until retirement. This could also involve detailed calculations – sometimes even requiring a delve back into the files to as far back as Hector’s era!!

We at BHP will be discussing the impact of the changes with all our clients and advising of any action that needs to be taken.

If you have any questions or concerns about how these changes will affect you, please contact Kirsty Swinburn or your usual BHP contact.