On that basis

The UK government’s proposed reforms to the basis period for taxation have been pushed back, following strong concerns about the proposals.

HMRC had proposed that for the self-employed, partnerships and LLPs, the basis of taxation should change from the current year basis to what will be termed an earnings basis, or tax year basis.

For example, a business with a 30 April 2023 year-end would have taken 1/12th of these profits for the tax year 2022/23, and 11/12ths of the profits for the year to 30 April 2024 to determine the taxable profit for 2023/24.

But, alongside Making Tax Digital for Income Tax Self Assessment’s planned introduction, proposed introductory dates have been pushed back to April 2024.

The views of the IFA and members

The IFA had stated: “The IFA supports the modernisation and digitalisation of the tax system. However, we are very concerned about how a change in basis period will fit into the overall timetable announced in July 2020 for MTD which includes extending VAT to all VAT-registered businesses from April 2022 and quarterly income tax reporting from April 2023 for MTD ITSA [now pushed back]. Corporation tax MTD is still to be consulted.

“While IFA members are largely in favour of the change to the tax year basis, as most unincorporated businesses use a 31 March or 5 April accounting period end already, there are a number of significant concerns summarised below and in the detailed responses to the specific questions. The roadmap for MTD detailed above will mean that many more individuals and businesses will be within the scope of MTD than before. These individuals and businesses will require help and support with the transition. Some of these individuals and businesses may not have a tax agent.

“There is no detailed timetable of MTD ITSA and how the proposed changes in the basis period will be implemented. We strongly urge HMRC to consult on this further before proceeding further. Specifically on the changes on the basis period reforms, while this is largely supported by IFA members, we are concerned that seasonal businesses will find it difficult to prepare accounts during their busy season. These businesses have often deliberately chosen an accounting period end that allows them to bring together their accounts when their businesses are less busy.

“Apportionment of profits to different tax years is something most IFA members would want to avoid, as it creates an additional cost for the business with no benefit. Businesses with a non-tax year accounting period would be encouraged to change their year-end to 31 March. Some businesses would want to make this change in the current year (2021/22) rather than wait until 2022/23. Guidance from HMRC would be required on how to do this.

Many IFA members are concerned about the concentration of work for accountants who will need to assist all of their clients to report income and expenses to the same quarters under MTD ITSA.”

Further detail from the IFA/membership response can be found online at: tinyurl.com/ifa-10501