Hundreds of thousands of self-employed to be hit with extra charges due to tax return shake-up

HUNDREDS of thousands of self-employed workers are facing a raid on taxes due to Treasury plans to shake up the tax returns system.

Under new proposals, firms and freelancers will be taxed on profits earned during the financial year, rather than the profits in their annual accounts.

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The government said the changes, which will come into force by 2023, will make tax reporting “simpler” for the self-employed and small businesses.

Announcing the changes, financial secretary to the Treasury Jesse Norman said: “These complex rules lead to thousands of errors and mistakes in self-employed tax returns every year.

“Simplifying them will allow self-employed people to spend less time doing tax admin and more time growing their business and creating jobs.”

Most companies currently align their accounts with the tax year, which ends on April 5.

But some firms post their annual accounts in line with the calendar year, or choose another month for business purposes.

The government said this leads to thousands of firms and individuals paying tax twice.

However, experts warned the proposals could make completing tax returns more complicated.

Guy Sterling, a tax Partner with Moore Kingston Smith, said the plans will be “a tax raid on the self-employed including subbies, white van man and professional tradespeople who have carefully chosen their accounting date”.

Sterling said: “Freelancers and other self-employed crafts who have chosen a year end that does not fall in the period 31 March to 5 April could find themselves with additional tax to pay in the 2022/23 tax year under planned changes.

“In addition to complicating the reporting of profits, this will accelerate the payment of tax for many people up and down the country.”

The government’s own impact assessment showed that around 3% of sole traders and 15% of partners will face ongoing costs related to making amendments under the new system.

Around a fifth of all self-employed workers would face a one-off charge, the Telegraph reported.

Richard Morley, a partner at accountancy firm HW Fisher, said: “Any reform to the tax system that makes it easier for the self-employed is to be welcomed.”

He added: “There will inevitably have to be some transition rules but when worked through, the proposals should lead to simpler tax reporting, although I’m not sure I agree with the Treasury that it will result in the self-employed spending any less time on their tax admin, possibly quite the reverse as far as the 2022/23 tax year is concerned.”

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This post first appeared on thesun.co.uk