Major Self Employed Tax Changes 2022/2023

Published / Last Updated on 24/07/2021

Most self employed people have a trading year that matches the self assessment tax year i.e.  06/04/20XX to 05/04/20XX or indeed to 31st March.  You will not be affected by the coming changes.

That said, many self employed people have different trading years e.g.  partners in a trading partnership may have different accounting periods/trading years e.g.  trade year ends 31/08/2021.   This is known as the ‘basis’ year i.e.  you file tax returns with your self employed income which then creates overlap periods i.e.  part of your trade/basis year was in tax year 06/04/2020 to 05/04/2021 and the other part of your trade/basis year in tax year 06/04/2021 to 05/04/2022. 

In short, your trade year profits i.e.  self employed income for tax year end 05/04/2021 may only be estimates as your trade year end does not finish until 31/08/2021.  These overlap profits and indeed the ability to claim overlap relief can create problems.  Some self employed may even get double taxed if they forget to claim overlap relief.

As part of Making Tax Digital (MTD), HMRC has issuesd a consultation paper i.e.  they have decided so it will 99.9% likely become law to simplify matters by moving all self employed trade/basis years to the normal tax year end.

The transition period is tax year 2022/2023 meaning that this will start to affect those with different trading years as soon as this year e.g.  Trade Year 01/09/2021 to 31/08/2022 i.e.  the end of your trade year will overlap into the transition year.

We expect in the above example that you will have technically have to file two tax returns in the transition year to meet your basis year tax requirements to 31/08/2022 and then a separate tax period for 01/09/2022 to 05/04/2023 or for some it may be one extended basis year e.g.  01/09/2021 through to 05/04/2023.

Start planning now, talk to your accountant if this affects you.

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