As usual, there were many items within yesterday's Budget that either didn't form part of Rishi's announcements or at least didn't grab the headlines ... and one of these is set out at https://www.gov.uk/government/publications/basis-period-reform/basis-per...
In short, the ‘current year basis’ is wholly replaced by a ‘tax year basis’ with effect from the tax year 2024 to 2025. So that a business’s profit or loss for a tax year is the profit or loss arising in the tax year itself, regardless of its accounting date. This removes the basis period rules and prevents the creation of further overlap relief. On transition to the tax year basis in the tax year 2023 to 24, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.
We all knew that this had been proposed and many will have noticed the draft legislation published on 20th July ... but AFAIK this is the first time we've been told that it WILL be happening. The legislation will be introduced in Finance Bill 2021-22 ... to amend Chapter 15 of Part 2 of ITTOIA and to introduce special rules for the transition year in 2023 to 2024.
Although MTD isn't specifically mentioned, the objectives/justifications from HMRC are as interesting as usual:
* All other forms of income are taxed on a tax year basis for individuals, including property income, interest and dividends. This policy aligns trading income with these other forms of income.
* For businesses that do not draw up their accounts to 31 March or 5 April, introducing the tax year basis for trading income will bring the payment of tax closer to the time that profits are earned. This will make it easier for businesses to save for their tax obligations, improve compliance, and reduce tax debt write-off.
* Bringing the payment of tax closer to the time profits are earned will also make the Income Tax system more responsive, giving effect to changes in rates and rules sooner for self-employed people and allowing any future support to be better targeted.
Ah well, it's good to see that they haven't lost their sense of humour. One of my favourites being: "Businesses that are expected to be affected by the measure include farming, other seasonal businesses and large partnerships. Data is not available to determine any particular equalities impacts for those in groups sharing protected characteristics, but it is not anticipated that there will be any." So if you're expected to be affected but HMRC don't have the data to quantify that, then it won't have any impact!
Good luck with explaining the actual impact to individual clients, whilst introducing them to the joys of MTD and your revised fee charges.