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Basis periods to be abolished in 2022

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Some unincorporated businesses will have bumper tax bills for 2022/23 as their accounts reporting is adjusted to fit exactly to the tax year from 6 April 2023, in preparation for MTD.

22nd Jul 2021
Tax Writer Taxwriter Ltd
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Draft legislation will be included in Finance Bill 2022 to abolish basis periods for businesses that pay income tax on profits calculated on a current year basis.

From 2022/23 those taxpayers will have to report to HMRC the income and expenses that arise precisely in the tax year – ie on an ‘tax year basis’. Losses will be those arising in the tax year.

Tax advisers with long memories will recall that on the introduction of self assessment in 1995/96, the basis for assessing income tax from unincorporated businesses was changed from the prior year basis (reporting accounts from periods ending in the previous tax year) to the current year basis (reporting accounts for periods ending in the current tax year).

MTD forces change

With the introduction of MTD for income tax from April 2023 (MTD ITSA), the reporting of accounting data is to be aligned exactly with the tax year.

The law will deem accounting periods ending on dates between 31 March to 4 April as ending on the tax year end: 5 April. Any income/expenses arising after the end of the accounting period will fall into the next tax year. This will apply to both trading and property businesses.  

Businesses which already draw up accounts to 31 March or 5 April will see no practical difference from 2022/23. Property letting businesses already have to report to the tax year, but in practice many draw up their accounts to 31 March, which by concession, is treated as a period ending on 5 April.

Why now?

Without this change to reporting periods taxpayers with several sources of income would need to file MTD reports for differing quarterly periods in the tax year, leading to up to 13 MTD filings required per year, plus VAT returns.

Under the tax-year basis the self-employed taxpayer will file MTD reports for all their sources of income by the same date each quarter, with a possible deviation for VAT if their VAT returns are not in the stagger one group (March, June, September and December quarter ends).

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Replies (138)

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By AdamMurphy
22nd Jul 2021 17:11

This is a ridiculous minefield because VAT-registered businesses with quarter ends different to those above will need working on numerous times each year.

Only way around this ludicrous MTD is to file any old figure each quarter and adjust when the actual year-end accounts are prepared.

Thanks (9)
Replying to AdamMurphy:
123 Sheets
By 123Sheets
22nd Jul 2021 18:19

I recall reading somewhere a few weeks ago, there is a consultation also on simplifying the tax year for individuals so as to end on a month-end, no doubt 31 March would be good: it would then tie in with many company year end dates and also about 50% of VAT Return period ends.

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Replying to 123Sheets:
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By bendybod
23rd Jul 2021 10:47

Well there will be a 40 day period each quarter where no accountants or bookkeepers book annual leave, won't there! We already have well over 50% of our VAT registered clients filing VAT returns on those quarters. Add in the clients that are unincorportating and those that are already unincorportated and trying to manage staffing levels is going to be a nightmare! We try to get clients on to monthly bookkeeping but many end up sending a few bits during the quarter and the balance at the quarter end!

Thanks (4)
Replying to AdamMurphy:
By Brian Ogilvie
23rd Jul 2021 10:30

I suspect that all vat registered sole traders and partnerships will be compelled to move to June Sept Dec and March quarter ends !

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Replying to AdamMurphy:
By Brian Ogilvie
23rd Jul 2021 10:33

Simiarly with companies from (?) 2026

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Replying to Brian Ogilvie:
123 Sheets
By 123Sheets
26th Jul 2021 09:55

From my experience 80%+ of sole traders already have an accounting year end that matches the tax year (or is 31 March), but no doubt there would be a not insignificant number that change their VAT period end as you suggest. This might be more of a problem for partnerships, but partneriships are far fewer in number than sole traderships at least (for their accountants to worry about).

I think a bigger problem will be for some businesses that have a year-end for a particular reason: eg retailers that have a 31 January year end, so they can do their stock take when the shop is mainly empty: empty of stock and empty of customers. April stock take for many businesses could be a right pain, particularly if they sell Easter eggs or what-have-you. Another example would be for those that work in the education sector: a year end of August makes sense, as often contracts follow school years, also there is no then no deferred or accrued income, and profits can be seen more easily, as accounting periods do not cross academic years. A 31 March year end will fall somewhere in the second term, and with varying Easter holidays... yuk!!!

It may be that those that want to keep a different year end date may just have to incorporate. I would imagine that most businesses that have these sorts of issues, such as stocktakes and educational businesses affected by a change of year end are already incorporated (or some other entity eg: charity or academy).

Your point re: companies I don't think is valid, a company tax year-end normally follows the accounting year end, so there won't be a similar problem for corporates, as they get to effectively choose what tax year end they want themselves, without an imposition. I do think the goverment would impose a tax year end date on corporates, it really would create too much havoc!!!

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By GHarr497688
22nd Jul 2021 18:27

I wonder what the point is in all these changes especially for taxpayers reaching retirement age. I can't think of any benefits to them just extra cost and learning for now reason.

Thanks (4)
Replying to GHarr497688:
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By bendybod
23rd Jul 2021 10:49

I foresee any clients who are nearing retirement age and are around the £10,000 to £30,000 income bracket jacking in earlier than they planned.

Thanks (5)
Replying to GHarr497688:
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By sammerchant
23rd Jul 2021 11:47

All changes to the tax system have been designed to make life easier for HMRC by dumping as much work as possible on the taxpayer (read accountant/agent).

Thanks (13)
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By GHarr497688
22nd Jul 2021 18:28

.

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RLI
By lionofludesch
22nd Jul 2021 19:24

I saw this coming and retired.

I don't need this carp.

Thanks (14)
Replying to lionofludesch:
By mydoghasfleas
23rd Jul 2021 11:31

Carp? Is there a new tax on goldfish?

Thanks (7)
Replying to mydoghasfleas:
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By RobertD
23rd Jul 2021 13:01

mydoghasfleas wrote:

Carp? Is there a new tax on goldfish?

No, but there is a charge on electric eels.

Thanks (7)
Replying to RobertD:
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By Open all hours
23rd Jul 2021 13:47

Watt rate?

Thanks (6)
Replying to RobertD:
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By sammerchant
24th Jul 2021 13:22

But you need to know your wrasse from your elvers.

Thanks (3)
Replying to sammerchant:
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By RobertD
25th Jul 2021 19:23

Definitely not. I was always taught to respect my elvers.

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Replying to RobertD:
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By johnjenkins
26th Jul 2021 08:48

Like your style Robert.

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By thomas34
22nd Jul 2021 20:27

Does it mean "accounting periods ending on dates 31/3 to 4/4"? Or should that be 31/3 to 5/4? Either way if anybody should want me I shall be in the sunset - yippee!

Thanks (1)
Replying to thomas34:
RLI
By lionofludesch
23rd Jul 2021 07:05

thomas34 wrote:

Does it mean "accounting periods ending on dates 31/3 to 4/4"? Or should that be 31/3 to 5/4?

No, of course it shouldn't.

You don't need to deem a 5/4 accounting period to end on 5/4. It already does.

Thanks (2)
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By Winnie Wiggleroom
23rd Jul 2021 06:20

Someone overheard a conversation last week at the HMRC MTD Dept
"Hey, someone just told me that not everyone has a year end of 5th April, is that true"
"not sure, that cant be right"
"best look into that, if so it will have to change"
"lets just change it anyway, no one will notice"

Thanks (7)
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By SXGuy
23rd Jul 2021 06:38

Oh wow. That logistical nightmare I've spoke of serval times regarding Mtd for income tax just got a whole lot more nightmarish. Maybe elm Street nightmarish.

What happens if we can't find overlap relief details? Are hmrc gonna supply them in advance? Doubt it.

This is gonna cause a massive problem.

Thanks (5)
Replying to SXGuy:
RLI
By lionofludesch
23rd Jul 2021 07:02

SXGuy wrote:

What happens if we can't find overlap relief details?

Ask HMRC. They know.

You're going to need to know overlap relief one day. Why wouldn't you find out what it is when you take on the client ? Why not plan ahead ?

There are enough problems ahead without making up new ones.

Thanks (1)
Replying to lionofludesch:
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By SXGuy
23rd Jul 2021 07:23

True!

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Replying to SXGuy:
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By Alanpryan
23rd Jul 2021 10:13

I think you will find HMRC don't know !

Thanks (6)
Replying to Alanpryan:
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By lionofludesch
23rd Jul 2021 10:14

Alanpryan wrote:

I think you will find HMRC don't know !

They've never failed to come up with it for me.

Thanks (0)
Replying to lionofludesch:
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By Alanpryan
23rd Jul 2021 13:42

I have asked them before to be told that their records don't go back that far! Perhaps it depends if they can be bothered or not?

Thanks (3)
Replying to Alanpryan:
RLI
By lionofludesch
23rd Jul 2021 13:54

Alanpryan wrote:

I have asked them before to be told that their records don't go back that far! Perhaps it depends if they can be bothered or not?

Just guess then.

I'd be happy to wager that HMRC will find those records in the proverbial attic if you guess too much.

Thanks (3)
Replying to Alanpryan:
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By debrahuzzard
23rd Jul 2021 16:53

same here, can't get overlap relief details from anyone - previous accountant or HMRC and client has no records that far back

Thanks (3)
Replying to lionofludesch:
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By Barkster
23rd Jul 2021 18:07

Then we must bombard HMRC with requests for the overlap relief figures for all our clients ! Make sure you send a separate letter for each client.

Thanks (5)
Replying to lionofludesch:
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By bendybod
23rd Jul 2021 10:52

We carry it forward on the working papers every year. It is a slappable offence to be lazy and leave it off.

Personally, I completely agree with it as a simplification measure - basis periods have always been far more complicated than necessary. Can we get rid of POAs that clients don't understand at the same time!!

Don't fancy the workload consequences though!

Thanks (3)
Replying to bendybod:
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By snickersinatwix
26th Jul 2021 08:56

Benybod I absolutely agree, and so do we. But there are one or two clients that came to us after the event and previous accountants did not provide overlap figures, so there will be some missing data for sure.

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By Geoff56
23rd Jul 2021 08:20

Does this change the position that up until now, self-employeds with a 31st March year end would not be caught by MTD for ITSA until 1st April 2024? (First accounting period beginning on or after 6th April 2023.)

Will the deeming of a 31/3 to 4/4 year end, to be a 5/4 year end, change this aspect?

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Replying to Geoff56:
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By lionofludesch
23rd Jul 2021 08:32

Geoff56 wrote:

Does this change the position that up until now, self-employeds with a 31st March year end would not be caught by MTD for ITSA until 1st April 2024? (First accounting period beginning on or after 6th April 2023.)

Will the deeming of a 31/3 to 4/4 year end, to be a 5/4 year end, change this aspect?

Imho, no.

But this is just a condoc. Not legislation.

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Replying to lionofludesch:
rebecca cave
By Rebecca Cave
23rd Jul 2021 09:37
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Replying to Rebecca Cave:
RLI
By lionofludesch
23rd Jul 2021 10:10

Rebecca Cave wrote:

It is legislation: https://assets.publishing.service.gov.uk/government/uploads/system/uploa...
To be passed in FA 2022.

So not legislation yet, then.

And could be subject to change. However unlikely that may be.

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By bluebaron
23rd Jul 2021 08:53

The crucial sentence -"a significant bunching of workloads for accountants..!" MTD for Income Tax just gets worse. Another reason why I'm going to be avoiding it.

Thanks (2)
By SteveHa
23rd Jul 2021 08:53

HMRC dictating how business operate for the sake of their own, ill-conceived ideas that they themselves have repeatedly proved themselves incapable of implementing. And I have another 11 years before retirement. I wonder if Primark are recruiting?

Thanks (5)
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By lordburnside
23rd Jul 2021 10:14

Not sure I can cope with this.
We have to change the tax year end to 31st March surely.
Where is the benefit in this?

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Replying to lordburnside:
RLI
By lionofludesch
23rd Jul 2021 12:55

lordburnside wrote:

Not sure I can cope with this.
We have to change the tax year end to 31st March surely.

Why ?

HMRC say they'll accept 31st March as 5th April.

Is there not enough change for you as it is ?

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By lordburnside
23rd Jul 2021 10:14

Not sure I can cope with this.
We have to change the tax year end to 31st March surely.
Where is the benefit in this?

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By Philip J Redhead
23rd Jul 2021 10:15

Do you think it's worth lobbying to get the overlap relief uplifted by RPI since is was incurred. Nice earner for the treasury due to up to 25 Years of fiscal lag? !!!!

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Replying to Philip J Redhead:
RLI
By lionofludesch
23rd Jul 2021 10:22

Philip J Redhead wrote:

Do you think it's worth lobbying to get the overlap relief uplifted by RPI since is was incurred. Nice earner for the treasury due to up to 25 Years of fiscal lag? !!!!

No.

It was rejected thirty years ago and it'll be rejected now.

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Replying to lionofludesch:
By Nebs
23rd Jul 2021 10:53

But changing the year end was voluntary. Now that it will be compulsory nobody should lose out.

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Replying to Nebs:
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By lionofludesch
23rd Jul 2021 12:56

Nebs wrote:

But changing the year end was voluntary. Now that it will be compulsory nobody should lose out.

How are they losing out ?

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Replying to lionofludesch:
By Nebs
23rd Jul 2021 16:47

lionofludesch wrote:

Nebs wrote:

But changing the year end was voluntary. Now that it will be compulsory nobody should lose out.

How are they losing out ?

By not getting indexation on their transitional overlap relief. Tax payable on profits earned today, less relief at 1996/7 levels. HMRC at the time said transitional overlap relief can be carried forward indefinitely - now they want to move the goalposts. Inflation has been roughly 100% since then, simple solution is to double all transitional overlap relief.

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Replying to Nebs:
RLI
By lionofludesch
23rd Jul 2021 17:20

Nebs wrote:

lionofludesch wrote:

Nebs wrote:

But changing the year end was voluntary. Now that it will be compulsory nobody should lose out.

How are they losing out ?

By not getting indexation on their transitional overlap relief. Tax payable on profits earned today, less relief at 1996/7 levels. HMRC at the time said transitional overlap relief can be carried forward indefinitely - now they want to move the goalposts. Inflation has been roughly 100% since then, simple solution is to double all transitional overlap relief.

It's not some sort of loan that the taxpayer has made to HMRC.

Generally, folk pay tax on profits twice because profits are rising and they'll pay less tax on profits earned earlier. If anything, HMRC are lending money to the taxpayer. Your logic is completely flawed.

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Replying to lionofludesch:
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By Philip J Redhead
24th Jul 2021 10:18

You are paying tax on profits twice in the early years and don’t get the relief for it until later, how is that a loan from the government

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Replying to Philip J Redhead:
RLI
By lionofludesch
24th Jul 2021 10:50

Philip J Redhead wrote:

You are paying tax on profits twice in the early years and don’t get the relief for it until later, how is that a loan from the government

You're paying tax on less than you earned year on year, building up a debt in small instalments. When you cease trading (or change your year end) you pay that debt back.

Do you not understand how overlap works ?

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Replying to lionofludesch:
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By Philip J Redhead
24th Jul 2021 12:17

I can see this increasing clients tax bills when the change kicks in through no fault of theirs.

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By Barkster
23rd Jul 2021 10:40

So what about VAT-registered unincorporated businesses already doing MTD for VAT (i.e. already on software) who have a non-5th April year end ?
Will they have to change too ?
Does any software cope with year end changes ?

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