Welcome to the final part of our series discussing all things basis period reform. In part 1, we outlined the changes involved and how they affect a business’ chosen accounting date along with their tax obligations. Part 2 delved into overlap relief and how best to utilise it during the transition.
Now, in this final part, we investigate the finer details of basis period reform coming into force in 2023/24, with information on practicalities and interacting with Making Tax Digital, as well as some important considerations for businesses.
Practicalities
Can I change my accounting date to avoid basis period reform?
Changing accounting date to 31 March or 5 April (or any date in between) will reduce ongoing administrative burdens from April 2024 onwards. In particular, it will remove the need to apportion figures from more than one set of accounts, and the possibility of having to file and correct provisional figures (see pt1).
However, it will not remove the need to apply the transitional rules in 2023/24, or prevent additional profits being brought into account.
If the change in accounting date takes effect in 2023/24, the business may however be able to access spreading (see pt2).
The usual restrictions on changing accounting date are also disapplied from 2023/24. This means that, if it wishes, a business can draw up a set of accounts exceeding 18 months in length to effect the change. For example, if a business has a year-end of 30 April, they could change this by drawing up a single 23-month set of accounts for the period from 1 May 2022 to 31 March 2024. There is also no need to worry about having a commercial reason for the change where there has been a previous change in the last five years.
However, whether a change in accounting date is suitable or possible is also a commercial decision, and businesses will need to consider the wider pros and cons beyond tax.
How will basis period reform interact with Making Tax Digital?
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will be introduced from April 2026 for businesses with turnover of £50,000 or more, and from April 2027 for those turning over at least £30,000.
Taxpayers in scope of MTD ITSA will have to submit quarterly updates of their income and expenses to HMRC. These quarterly updates will align with the tax year, and not the accounting period of the business.
The introduction of the tax year basis from April 2024 may make alignment with MTD for ITSA quarters easier. However, it should be remembered that, if the business does not have a 31 March or 5 April year-end, then under the tax year basis it is not the transactions actually taking place in the tax year which are subject to tax, but rather the apportioned profits of the relevant accounting periods.
It is not yet clear exactly how software will handle the transition from quarterly updates to the taxable profit for the year, where a business does not have a 31 March or 5 April year-end.
And that concludes our three-part series on basis period reform! If you missed any previous installations, please refer to the blog section on our website or the links within the article.
If you would like to discuss any part with one of our advisors or need help with the transition, please contact our Commercial Client Director, Fabrice Legris, at fabrice.legris@fiandertovell.co.uk.