Basis period reforms are delayed, but will be on their way

Natalie Miller

HMRC has delayed changing the rules for determining when business profits are taxed until 6 April 2023 but affected businesses will need to start thinking about the implications now.

Under the current rules, unincorporated businesses are taxed on what is known as the ‘current year basis’, on the profits of for the period ending in that year.  However, this will be ‘simplified’ so that you will be assessed on a ‘tax year basis’, on the results to 5 April (or any date after 31 March), regardless of your accounting date.  The 2023/24 tax year will be a transitional year when two accounting years are taxed, so that you can catch up, and by 2024/25 you will be within the tax year basis. 

If your accounting date is already either of those, you won’t see any difference.  If you’re setting up a new business, you could simply choose a 31 March to 5 April accounting date from the outset.  If you’ve got a different accounting period end, you could consider changing it so that you’re neatly within the new provisions.  You should always get advice before making these decisions so now is a good time to have a chat with your agent.

However, what if your existing date is there for a good reason – maybe you’re an industry such as hospitality or farming, where it’s better to wait for the end of the ‘season’ to prepare accounts, or perhaps your profits come from a partnership interest where you have no control over the accounting period end.  In these cases, the new rules are going to have an impact on your tax reporting for the foreseeable future.

This is an issue which makes more sense with some numbers, so we’ve prepared a ‘knowledge article’ on the website,  where you can follow this through.  The draft legislation has been published and includes some changes made following feedback and HMRC has said that they will continue to explore options to minimise the burdens of the extra reporting but, with these rules around the corner, and Making Tax Digital (MTD) due the following year, the best advice is to speak to your accountant well in advance so that you can plan accordingly. 

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