Tax Update – September 2022

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The changes to the basis of assessment of self-employed profits are scheduled to change from 6 April 2024. The new rules mean that profits (and losses) will be assessed based on the amounts arising between 6 April and 5 April instead of the profit/loss of an accounting period ending in the tax year. This means that where the business accounts do not coincide with tax year the profits or losses will need to be apportioned. This is intended to coincide with the start of Making Tax Digital for income tax.

Transitional rules proposed for the previous 2023/24 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year end. The profits of year ended 30 April 2022 would be taxed in 2022/23 under the current rules with 2024/25 taxing profits arising between 6 April 2024 and 5 April 2025 under the new rules. But what about 2023/24?

The profits taxed in 2023/24 would be those for year ended 30 April 2023 plus the period 1 May 2023 to 5 April 2024 – in total 23 months profits!

The good news is that there would be a deduction for “overlap relief” (as much as11 months) which typically arose when profits were taxed twice at the start of the business – but those will often be much lower than the extra 11 months being taxed in 2023/24.

The transitional provisions provide for the “excess” profits to be spread over the next 5 tax years to smooth out the excessive tax bill.

The figures in the table below are the HMRC suggested reimbursement rates for employees’ private mileage using their company car from 1 September 2022. Remember that provided all private fuel is fully reimbursed the fuel benefit does not apply.

Where the employer does not pay for any fuel for the company car these are the amounts that can be reimbursed in respect of business journeys tax free.

Where there has been a change the previous rate is shown in brackets.

Note that for hybrid cars you must use the petrol or diesel rate. You can continue to use the previous rates for up to 1 month from the date the new rates apply.

In response to a recommendation by the Office of Tax Simplification the Government have introduced draft legislation for inclusion in Finance Bill 2023 that extends the no gain/no loss rule when a couple separate.

Under the current rules the no gain/no loss rule that means that there is no CGT on transfers of assets between spouses or civil partners only applies up to the end of the tax year in which they separate. The divorce settlement or court order that transfers assets between the couple often takes place many months after the separation and may lead to CGT being payable.

The main change proposed is that separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain/no loss transfers. Most divorces would be concluded within this period.

No gain/no loss treatment will also apply to assets transferred as part of a formal divorce agreement.

If you would like anymore information on any of these topics, please don not hesitate to contact our Tax Team on 01384 376964

Folkes Worton LLP Chartered Accountants
Accounting for the Future