Tax change on the way for sole traders and partnerships
On 20 July the Government started a consultation on proposals that would see a significant change in the way sole traders and partnerships are taxed from April next year.
It will mainly affect those businesses who currently have anything other than a 31 March or 5 April accounting year-end.
Whilst it is being flagged as a simplification, and it in many ways is, it could lead to an acceleration of tax liabilities for many businesses, with some facing higher than expected tax bills in January 2024.
Currently, businesses are taxed based on the profits for the accounts year ending in the tax year – so if your business has a 30 June year-end, your 2020/21 tax will be based on the 30 June 2020 accounts.
From 2023/24, all businesses will be taxed based on the results for the tax year, with an apportionment being made for businesses who continue with anything other than a 31 March or 5 April accounting year-end.
The 2022/23 tax year will be the transition and the transitional adjustments may, depending on profit levels, increase the tax liability for that year. There are proposals to allow a five-year spread of the additional tax for those businesses adversely affected but this has not yet been finalised.
If you are affected, your usual contact at BHP will be contacting you to discuss the impact of these changes but if you have any concerns in the meantime, please contact us.