HMRC Changes for Sole Traders and Partnerships
HMRC will be changing the way they assess profits for sole traders and partnerships.
Previously, if you had a year-end between the 6th April and 30th March you were taxed on the profit made on your year-end accounts that falls into a set tax year.
This will now change so you are taxed on the full 12 months ending in the tax year, plus any profits between your year-end and the 5th April of the Tax year.
- You have a 31st December year-end and you make a profit of £32,000.
- You make an £18,000 profit between 1st January and 5th April
- HMRC allow this £18,000 to be split over 5 years meaning you get taxed an additional £3,600 on each tax year.
- This means your Taxable profit will be £35,600
There is a potential that you can access tax relief from when you started trading called ‘overlap relief’, but this is a complex calculation.
We would recommend that you change your year-end which is another complex calculation, but will be beneficial in future years with the new rules to the 31st March. This is not compulsory, but definitely recommended.
You may read this and think it is overly complex and unfortunately it is – with MTD coming in, there is no way to avoid doing this and without an Accountant it is nearly impossible to do.
Folkes Worton have an experienced Tax Team led by CTA qualified Accountants with vast experience on complex calculations like this and we understand that as a sole trader or partnership you do not want to get stung by either Tax or Accountancy fees.
We can offer a fair price for the complex work above and ensure that your tax affairs going forward will be simpler.
Call us on 01384 376964 to find out how we can help you.