Changes to tax basis periods

HMRC has launched a consultation into proposed tax reforms which could see some self-employed individuals and unincorporated businesses facing an increase in tax liabilities in 2022/23.

With the introduction of Making Tax Digital for self-employed coming closer, HMRC has announced a proposal to “simplify” the tax system. This would mainly affect businesses that do not currently have a business year-end of between 31 March and 6 April. The proposal would see the profit period assessed in the transitional year of 2022/23 lengthened to bring the period of assessment into line with the tax year. In many cases, this will result in higher tax liabilities.

This is a very recent announcement and there is a fair bit of detail that we have yet to see.

What we do know

This is a proposal and the consultation period ends on 31 August 2021, so nothing is definite at this stage.

Self-employed individuals and unincorporated businesses who currently have a year-end of 31 March / 6 April should not be impacted.

The changes will mainly affect self-employed individuals and unincorporated businesses who draw their financial accounts to a date other than 31 March / 6 April.

In 2022/23 taxation of profits would be aligned with the tax year by assessing a period longer than 12 months, in many cases giving rise to accelerated tax liabilities.

Any overlap relief would be deducted in full.

There may be an option to spread any increase in tax liabilities over 5 years.

The tax rules for businesses in the early years of trading or who are ceasing will also change.

What we don’t know

Will the superannuation framework for GPs (which is largely based on taxation rules) also change?

If pensionable earnings increase because of this proposed change to tax basis periods, giving rise to annual allowance tax charges, will there be any form of relief or spreading of those additional charges?

What this means for your practice

If your current business year-end is 31 March / 6 April or if you run a limited company, these proposals will not affect you.

Even if you are likely to be impacted there is no immediate action to be taken. We will respond to the consultation and keep you informed of any developments.

At this stage, the earliest point in time you might see an increase in tax liabilities is January 2024. Our team will continue to provide tax estimates so that clients are always aware of these well in advance.

Our services

If these proposals go ahead, there will be a shorter timeframe to complete business accounts that are needed to file tax returns (1 April to 31 January) bringing an unprecedented level of pressure on practice/business managers and accounting firms. We will work with clients to ensure there are clear plans and timetables in place, using digital technology, which will speed up the year-end delivery.

Get in touch

While much detail is still awaited and these are for now, only proposals, if you do wish to speak to one of our team about the implications, please get in touch.

Back to Summer 2021 update

Healthcare news - Summer 2021

In this update, we discuss off-payroll working regulations, how HMRC's new proposed tax reforms may affect you as a self-employed individual or an unincorporated business, electric cars and their tax implications for the self-employed, inheritance tax planning, and cybersecurity.