Tax Tools and Deadline Dates for Sole Traders

Sole traders facing the daunting task of complying with new tax reporting requirements have been offered a helping hand by HMRC. With the introduction of Basis Period Reform, sole traders in the UK must report their profits up to the end of the tax year, regardless of when their accounting year-end date is. To assist them with this transition, HMRC has now launched a new interactive tool.

The new tool aims to simplify the process of completing the 2023-24 Self Assessment tax return by guiding users through the necessary steps. By inputting details about their business, profits and losses, sole traders can ensure accurate reporting and compliance with new regulations.

Who Will Be Affected by the Reforms?

HMRC has emphasised that the 2023-24 tax year serves as a 'transition year' for those impacted. Those affected include:

• 280,000 sole traders

• 250,000 partners in Limited Liability Partnerships (LLPs)

• Not limited companies

Distinct accounting structures spare limited companies from the impact of Basis Period Reform. Unlike sole traders and partnerships, limited companies operate under a legal entity with standardised financial reporting periods.

Overlap Relief for Sole Traders

One significant aspect of the reform is the requirement for businesses to report profits up to the end of the tax year, even if their accounting year concludes on a different date. This change may force sole traders and partners to report more than 12 months of profits in the 2023-24 tax year, potentially resulting in higher income tax.

To resolve this issue, HMRC offers a mitigation strategy where taxpayers can utilise ‘overlap relief’ for profits generated during the additional months. You can spread any remaining profits across five tax years, up to 2027-28.

How to Get Prepared

Preparation is vital for sole traders and partners affected by the reform. Follow these steps to ensure you pay the right amount of income tax:

1. Obtain your overlap relief figure

2. Calculate your transition profit

3. Include transition profit and overlap relief in your 2023-24 Self Assessment

Familiarising yourself with HMRC’s deadlines is essential if you have tax obligations. You could face financial penalties if your tax return or payment is late. However, you can appeal against a HMRC penalty with a reasonable excuse. Here are some critical dates for your diary:

• 5th October 2024: Deadline for registering for a Self Assessment tax return

• 31st October 2024: Deadline for submitting a paper tax return

• 31st January 2025: Deadline for submitting online and paying the tax you owe

Steering Clear of Tax Troubles

HMRC's introduction of Basis Period Reform significantly changes tax reporting for sole traders and partnerships in the UK. With the launch of the new interactive tool on GOV.UK, taxpayers can now navigate these changes with greater ease and accuracy.

While limited companies remain unaffected by the reforms, affected businesses must utilise the available resources and guidance to ensure compliance and a smooth transition to the new framework.

Comparing Tax Loans

At BusinessComparison, we’re here to help you find the most suitable loans for your business. Our comprehensive comparison includes a range of business loans from reputable high-street banks to more specialised, small lenders.

Looking at Liability Insurance

Given the personal risk involved, sole traders should strongly consider professional indemnity or public liability insurance.

Finding the right insurance coverage for your business is crucial for financial protection against legal claims. Compare providers to assess coverage options, consider specialised coverage needs and review policy terms and exclusions.

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Sam White