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The Chartered Institute of Taxation’s Budget representations (tinyurl.com/ciotbudgetrep2021) raise some pertinent issues about what happens when reporting periods for self-employed profits, VAT and property income are out of alignment. In the fearsome-looking diagram in the appendix there is an example of 15 separate reporting points in a 12-month period. This is not a contrived theoretical example but something which could happen in real life.
This made me think more widely about how we report profits. The idea of annual accounts is so ingrained into our thinking that we take it for granted, but is it always the right approach? For a substantial business, in particular when there are external stakeholders, some annual reckoning up is essential, but how important is it for, say, a self-employed window cleaner with no employees and minimal expenses? What matters to them is not the profit at the end of an arbitrary year but how much cash is left at the end of the week or month. Should we require somebody in this position to produce annual accounts? Would it be more sensible for the tax and reporting rules (particularly if supported by technology) to be aligned with the way that an individual actually looks at their profits?
Of course, as soon as I raise this, all sorts of reasons for maintaining the status quo come to mind and it may be that there is no real advantage in changing. But that example in the CIOT submission should prompt us to step back and think, rather than assume that annual accounting is set in stone.
