PHAM NEWS | APRIL 2024 18 Business Matters


Tax calculations for SMEs explained in plain English


Changes being made by HMRC mean sole traders and the self-employed will now have to calculate and report their profi ts based on the same time period as the UK tax year, instead of using their own accounting year. Tom Walker, Partner at Wellers, the small business accountants to SMEs, discusses how basis period reform taxation may aff ect you.


businesses needing to report on profi t gained during this period for tax to be applied. However, under the current regulations, many sole traders and self-employed are stung with earnings being taxed twice during the fi rst year of trading. This is down to the fact that


W


many unincorporated businesses have a diff erent accounting year, known as the ‘basis period’ to the tax year, meaning tax can’t be calculated across a whole 12-month period. This is rectifi ed through overlap relief, which can be applied for when there is a change in your year- end or when trading ceases. The process is complex and


involves lots of admin, which is why HMRC is reforming the basis period, bringing everyone in line with the UK tax year. Those impacted will have to comply with the new regulations from 5th April 2024.


Basis period reform The major change being enforced by HMRC is that all sole traders


Tom Walker Partner at Wellers Accountants


e all know that the UK tax year runs from 6 April to 5 April, with


or self-employed individuals will be required to report profi ts based on the UK tax year, rather than their accounting year. For some, this might have no impact at all. It all depends on whether your accounting year aligns to the tax year. If your accounting year ends


between 31 March and 5 April, you will already be reporting profi ts in the way HMRC wants you to, so no further action will be required. Of course, if you are unsure when your accounting year ends be sure to consult with a tax advisor, so you don’t get caught out.


Although basis period reform seems daunting, it has been designed to make tax


calculations simpler in the future


Cutting the paperwork enhances business fl ow


Trade software specialist Fergus highlights the effi ciency gains a plumbing business has made using its job management software


Being a plumbing and heating business poses a signifi cant challenge. Balancing hands-on work with administrative tasks like scheduling, invoicing and customer communications can be overwhelming for one individual. With 27 years of experience


in the plumbing industry, Paul, the owner of Cosy Home Services, recognised that while spreadsheets, customer fi les and paper invoices may look simple, they are ineffi cient, error-prone and time consuming.


With contracts for local housing associations and letting agents, Paul needed job management software to keep all job-related details, from customer data to invoicing, organised and accessible in one place.


Pulled together After a careful search, Paul chose Fergus and found it had everything he needed to save time and boost profi ts, streamlining his work and ensuring tasks were done correctly from the outset. The Fergus dashboard tracks


the progress of numerous jobs from initial estimates to invoicing completion. It gives installers the ability to generate invoices, track payments and set up recurring billing, reducing paperwork and ensuring a steady cashfl ow.


Synchronicity If you have a basis period and tax year that are out of sync, you will need to take some extra steps and calculate profi ts during a transition period. You could also look at moving your accounting year, in order to comply with new regulations. You will now need to report on


the profi t earned from the tax year alone, which will require profi ts from any overlapping accounting periods to be included. This could become a challenge where your second accounting period might not be complete in time for the self-


assessment tax return deadline on 31 January. In such instances, HMRC will allow estimated fi gures to be submitted. The true fi gures must be put forward within 12 months. The result of this is an extended


accounting period, in which profi ts from your standard accounting period and profi ts from the transition period will be taxed. In some cases, this will result in additional tax that can be paid in installments to HMRC if needed. Once you’ve completed this process, future tax calculations will be based on the tax year alone.


Moved accounting year Another option for sole traders, or those self-employed, is to move the accounting year to align with the tax year. Making this move will require no additional calculations and should be less complex and time-consuming. Before moving your accounting year, there are two things you should consider: • When the best time to move


your accounting period is – if you move your accounting period during the 2023 – 2024 tax year you may be able to benefi t from the basis period reform change,


as additional profi ts and tax could be spread. • Consulting a tax advisor –


moving your accounting period can be quite complex so it’s best to consult a professional to avoid any hiccups along the way.


The next step Although basis period reform seems quite daunting on the surface, it has been designed to make tax calculations simpler in the future. If you are self- employed, or act as a sole trader, the fi rst thing you should do is clarify when your accounting year starts and ends. Once this has been established you can decide on the best course of action, whether to calculate transition period profi ts or to move your accounting year. For all things tax planning, and if you need more advice, it’s probably best to consult a trusted tax advisor.


About the author Tom Walker has been with Wellers since 2009 and helps clients in setting up financial systems to accurately record numbers and control business performance. ◼ phamnews.co.uk/424/21


reducing his administrative burden. “I can go to a job and when


I come back, it’s there on the system and within three clicks I can send an invoice to that customer and attach any legal documents to it straightaway,” says Paul. “Fergus does things a lot quicker than I would normally, so the value is the fact that I’m not losing time like before.” Fergus helps to eliminate


Need for speed The speed of the Fergus system was a standout feature for Paul – jobs that had taken several minutes could be completed in just a few clicks, halving the time spent on paperwork. The ability to pre-populate


routine information has also reduced the time he spends fi lling in job sheets, thereby signifi cantly


the risk of human error. Aside from quickly creating quotes, it can send automated payment reminders, pinpoint areas where excess resources are being used, enable automatic reordering when supplies run low, and keep customers in the loop about their project’s progress through automated text or email updates. The software also has a swift search capability which has signifi cantly improved Paul’s professionalism and client engagement. He can instantly retrieve a customer’s details,


review past services and proceed accordingly. “When a customer I worked


with a year ago phones me and wants a new quote, I can just type in the fi rst line of their address and within three seconds I’ve got the information in front of me,” explains Paul. “I can then see what I’ve done at the property the last time I went and go from there.” Paul’s journey with Fergus


shows that adopting the right technology can help small businesses fl ourish. The software has streamlined his admin tasks and elevated his client service. As his company, Cosy Home Services, expands, Fergus is a constant ally, underscoring that the right investment in job management software can be key to business success.


Find out more Learn about the business software options available from Fergus on the link below. ◼ phamnews.co.uk/424/22


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48