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Home » News & Insights » Tax by stealth?

Tax by stealth?

Posted on 3rd November 2021

As we speculated in a post last week, we expected and were granted, more tax by stealth in the October budget. 

This time, it was the self-employed who will potentially, be out of pocket.

It will affect all self-employed businesses – sole traders and partnerships – who presently trade with a year-end that is different from the end of the tax year (5th of April or 31 March).

Traders who presently have a 31 March or 5 April year-end will not be affected.

During the tax 2023-24, those businesses who are affected will be transitioning to an actual year basis. For example, self-employed businesses that presently have a 30 April year-end date will be taxed in 2021-22 on profits for the year to 30 April 2021.

This means, when we transition to an actual year basis during 2023-24, the profits for the year to 30 April 2023 plus the period from 1 May 2023 to 31 March 2024 will be taxed in 2023-24.

This adjustment to an actual year basis, rather than the accounts year ending in a tax year, is where the stealth element shows its hand.

By enforcing catch-up in this way, the Treasury will potentially gather in tax in one tax year on trading profits of more than one year.

There is a relief that will help to reduce this tax hit; it is called overlap relief. It will be based on profits that were effectively used twice when the opening years’ calculations were assessed by HMRC.

We recommend that any traders with a year-end other than 31 March or 5 April, consider their options as it may be beneficial to make this change to an actual basis before 2023-24. It’s only by crunching the numbers, and considering the prospects for your business, that you can minimise any impact on future tax payments.

Source: informanagement

MJB Avanti help you to achieve both your personal and business financial goals, call us on 08000 388799

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Filed Under: News Tagged With: Budget, HMRC, Self Assessment, Self Employed, Tax

Disclaimer:- The information contained herein is given by way of general guidance only and no action should be taken solely on the basis of the information contained herein. The Avanti Group (UK) Ltd will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any action taken without seeking appropriate professional advice

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