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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 (154)

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Replying to Barkster:
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By bendybod
23rd Jul 2021 10:55

Nobody HAS to change. It is the reporting periods that are changing, not necessarily clients' accounting year ends. In reality, it makes sense to change though. Otherwise you have to start splitting accounting years across reporting periods.

Thanks (2)
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By snickersinatwix
23rd Jul 2021 10:42

Again I raise the question

WHO in HMRC has time to deal with this new stuff when they have been sitting on my client's £10k tax refund since January (might get it back next month if he is lucky), they can't answer the phone (I waited 10 mins on the agent helpline today - better than previously but still too long) and they are not dealing with post in a timely manner.

GET YOUR OWN HOUSE IN ORDER HMRC BEFORE YOU START CHANGING EVERYTHING.

Thanks (22)
Replying to snickersinatwix:
By Nebs
23rd Jul 2021 10:55

HMRC should have penalties, payable to the affected taxpayers, when they do not deal with things in a timely manner or get things wrong

Thanks (14)
Replying to Nebs:
RLI
By lionofludesch
23rd Jul 2021 12:59

Agree.

But there'd be so many penalties, HMRC would make a loss.

Thanks (5)
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By johnjenkins
23rd Jul 2021 10:46

I'm still not so sure that the quarterly updates will happen with earners over £10k per annum.
However I think that is the only room for flexibility with HMRC. I would presume, as the threshold for higher rates tax payers is £50k, that could well be the figure used to start with.
My own view is that every business regardless of turnover should be VAT registered with no vat paid between those business. So the only money HMRC get is vat from Joe public, which is what VAT was intended for.
MTD should be voluntary which will lead, eventually, to all business signing up, especially as the younger generation come through and the older generation retire. What's it called? ah yes, natural progression.

Thanks (1)
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By bluebaron
23rd Jul 2021 11:12

The quarter ended 5th July is going to be fun, when most people are on holiday...!!!

Thanks (2)
Replying to bluebaron:
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By LJohnstone
23rd Jul 2021 11:32

The day before P11D deadline day too.

Thanks (1)
Replying to bluebaron:
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By kdbr
27th Jul 2021 15:49

Nah, too busy doing the 2022 returns... MTD'll have to wait.

Thanks (0)
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By Caerlyr
23rd Jul 2021 11:19

It is all well and good moving everybody to 31 March year end for MTD to "match" tax years but what will happen when/if HMRC change the tax year to calendar years.
No doubt we will have to move them all again, or does this indicate that HMRC have gone off the idea of the calendar year as tax year?

Thanks (1)
Replying to Caerlyr:
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By Southwestbeancounter
23rd Jul 2021 14:08

Yes I wondered that - I'm guessing it's a subtle hint that they are going to either leave it as it is or shift it slightly to 31 March but who the heck knows with the shambles we have to deal with on a daily basis!!

Thanks (0)
By mydoghasfleas
23rd Jul 2021 11:28

This manoeuvre is easy to explain. When you have promised not to increase taxes increase the amounts on which you pay taxes by bringing them forward. This was done (for simplification) when taxation of untaxed income was on the preceding year basis.

The effect was not simplification, it became a minefield as you had to make decisions on variables, such as pension contributions, before you knew the income for the year, hence a number of switches away from 31 March/5 April dates.

Now for the businesses who do not have a tax year end accounting date they are being forced into one. Tax is not the primary consideration for selecting an accounting date, some businesses are seasonal, others have good reason too. Imagine a business that has a peak income at Easter so uses 30 April as a year end. 2022/23 one Easter, 2023/24 two Easters, 2024/25 no Easters, 2025/06 one Easter using 31 March two using 5 April.

Add in OTS's proposal to change the tax year end from 5 April to 31 March (how is that change simplification?) all it does raise 5/365ths extra tax as a one off.

All of it seems to be to making MTD simpler for HMRC, there is no explanation of how it makes thing simpler for the taxpayer; only the unpleasant news that will be passed on by the accountant that their tax payments will go up.

I hope you all have your overlap relief calculations from 1997 available

Thanks (3)
Replying to mydoghasfleas:
RLI
By lionofludesch
23rd Jul 2021 12:44

mydoghasfleas wrote:

I hope you all have your overlap relief calculations from 1997 available

I can't say this often enough, apparently, but HMRC will have them.

Back in 1997, we knew we'd need them. So we kept them.

Thanks (1)
Replying to lionofludesch:
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By sammerchant
24th Jul 2021 13:06

But HMRC staff are either unable or unwilling to do the calculations. They responded to my request by sending me a copy of the relevant tax returns for me to work out.

Thanks (0)
Replying to sammerchant:
RLI
By lionofludesch
24th Jul 2021 13:26

sammerchant wrote:

But HMRC staff are either unable or unwilling to do the calculations. They responded to my request by sending me a copy of the relevant tax returns for me to work out.

Well, don't knock it - it could be an advantage .......

Actually, if the return's been completed properly, it should be in one of the boxes (around 3.79ish, if I remember rightly - I can't be bothered to look it up, I'm afraid). They don't need to do the calculations, whether able or unable.

All I can say is I asked for confirmation of Transitional Relief for a client earlier this year and I got a letter back a month later saying exactly what it was. Nor have I ever been refused the information - albeit that I've only asked maybe half a dozen times.

Maybe your letter was given to one of the lower grade staff, who didn't know what you were talking about.

Thanks (0)
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By DMBAcc
23rd Jul 2021 11:39

What is the point of responding when all our comments will be ignored as before. Role on 30 September 2023 when I shall retire. I predict there will be millions of sole traders who will not be able to cope with this. As I have said before we are heading for cash accounting which is the only accounting system civil servants understand.

Thanks (7)
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By Tomazaan
23rd Jul 2021 11:49

So far, most comments have been about the difficulty for accountants trying to deal with this. Here are two further thoughts not relating to work load:

(1) I act for a farming partnership which has a 30/6 year end because that is what fits best for the farming year. They will not change this so to calculate their taxable income for 2024/25 (say) we shall to add 1/4 x year end 30/06/24 to 3/4 x 30/06/25. Not the end of the world but a bore and it will mean that they won't know their taxable income until some time after the tax year end. It will make planning more difficult.
(2) Allied to that we shall need to have the ability to relate some things (pension payments, for eg) back a year as for many clients (with non 31/3 to 5/4 year ends) they will not know what their taxable/ pensionable income is until some time after the end of the tax year.

With regard to the MTD aspect of this, I think we/ the client shall be submitting quarterly returns of non-adjusted income and expenses based on invoices, bills or cash flows similar to what happens for VAT returns. The adjustments to the raw data to full accounts will be done once a year, as now, but with an extra computation for some similar to what we do in the opening years of a business.

I don't see this as a huge amount of extra work over and above what we are going to have to do for MTD for income tax. The main problems, I think, are the uncertainty over what a client's taxable income in any particular year might be and the time pressure in respect of those businesses which have a year end late in the fiscal year.

Thanks (1)
Ivor Windybottom
By Ivor Windybottom
23rd Jul 2021 12:01

Seems premature to adopt 31 March for self-employment at this time when the consultation over the actual year end is still ongoing.

Perhaps it is assumed that the outcome of that consultation will be to adopt the calendar year and that it will be unworkable to make that change because of the work involved, not least because stoopid decisions to adopt 31 March will have been made in the run up!

Thanks (1)
Replying to Ivor Windybottom:
123 Sheets
By 123Sheets
26th Jul 2021 17:49

I don't see the 31 Dec as a year end date is going to work (unless some other changes are made). A lot of self employed retailers are not going to do a stocktake during the New Years sales period. A lot of businesses do various activities straight after year end, or just before, no one is going to want to do that during Xmas. I know some countries do have a calendar year fiscal year-end date, but I think it will just create too many problems in the UK to start that now.

Thanks (0)
Replying to 123Sheets:
RLI
By lionofludesch
26th Jul 2021 17:57

123Sheets wrote:

I don't see the 31 Dec as a year end date is going to work (unless some other changes are made). A lot of self employed retailers are not going to do a stocktake during the New Years sales period. A lot of businesses do various activities straight after year end, or just before, no one is going to want to do that during Xmas. I know some countries do have a calendar year fiscal year-end date, but I think it will just create too many problems in the UK to start that now.

It would be change for the sake of change.

Just what we criticise the Government for.

Thanks (0)
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By fozia
23rd Jul 2021 12:08

They should just change the tax year to 31 December, which would result in a basis period change (Shorter NOT longer) and that would kill 2 birds with one stone, rather than mess about with this basis period change to "help" us with MTD, only then to do a tax year end change to December in the not so distant future!

Thanks (1)
Replying to fozia:
RLI
By lionofludesch
23rd Jul 2021 12:48

fozia wrote:

They should just change the tax year to 31 December, which would result in a basis period change (Shorter NOT longer) and that would kill 2 birds with one stone, rather than mess about with this basis period change to "help" us with MTD, only then to do a tax year end change to December in the not so distant future!

What is this fascination with 31 December as some kind of natural financial and tax year end ?

Thanks (0)
Replying to lionofludesch:
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By SXGuy
23rd Jul 2021 13:06

I believe they call it New Years Eve.

Thanks (0)
Replying to SXGuy:
RLI
By lionofludesch
23rd Jul 2021 13:19

SXGuy wrote:

I believe they call it New Years Eve.

It would be probably be within my last three choices of date. Behind Christmas Day and Boxing Day.

I wouldn't want all that year end tax planning work in December. Maybe that's what HMRC are hoping - that tax planning work won't get done.

Anyway, 31st December isn't everybody's year end. The Chinese, Muslims and footballers (amongst others) would see it as discriminatory.

Thanks (0)
Replying to lionofludesch:
By petersaxton
18th Aug 2021 10:41

Even stupid clients will understand the date. Clients come up with all sorts of dates for the tax year:
5 April 20xx to 6 April 20xx+1
20xx when the year end is 20xx+1

If they just say 20xx when the tax year is the calendar year then there's no confusion.

You might think that's a minor inconvenience but no matter how many times you correct clients they still can't think correctly when doing something. It would reduce errors and corrections required.

Thanks (1)
Replying to lionofludesch:
By petersaxton
18th Aug 2021 10:43

.

Thanks (0)
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By geraldw
23rd Jul 2021 12:12

Thankfully I had already planned to retire by 30th June next year. It's about time but also I want out before MTD and change of accounting periods. From reading this thread I gather more accountants are going along the same thought pattern. So where will all the business people go to get help with all this complicated stuff, which is so complicated even for accountants with many years experience and training. ( And HMRC themselves ! ).
Phone lines to HMRC will be even busier, and waiting times even longer.
Hurrah for more tax collected AND more penalties and interest,

Thanks (4)
Replying to geraldw:
RLI
By lionofludesch
23rd Jul 2021 17:44

geraldw wrote:

Thankfully I had already planned to retire by 30th June next year.

Very wise.

Thanks (0)
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By raju m
23rd Jul 2021 12:13

What a load of ------------. Businesses and accountants have enough problems with COVID etc.

These new stupid rules and changes will make life a lot more difficult and stressfull.

Time to call it a day!!!!!!!!!!!!!!!!!!!!!

Thanks (4)
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By Sara Corbett
23rd Jul 2021 12:34

As an accountant with the majority of my clients being unincorporated sole traders and partnerships it is going to be completely impossible to file all the quarterly returns as well as prepare accounts for all the clients. None of these clients currently use digital software and most have no wish to do so as they either keep paper records or on excel.

HMRC need to look outside big cities and get into the real world.

Thanks (16)
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By Sara Corbett
23rd Jul 2021 12:34

As an accountant with the majority of my clients being unincorporated sole traders and partnerships it is going to be completely impossible to file all the quarterly returns as well as prepare accounts for all the clients. None of these clients currently use digital software and most have no wish to do so as they either keep paper records or on excel.

HMRC need to look outside big cities and get into the real world.

Thanks (4)
Replying to Sara Corbett:
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By Southwestbeancounter
23rd Jul 2021 14:15

Couldn't agree more!

We have many clients with perfectly adequate manual records - why should we get them onto software that they will hate and line the pockets of the likes of Xero, QuickBooks et al?!!

This is a complete farce and something needs to be done about it as I feel the reasons HMRC want MTD brought in are not the real issues and there must surely be another agenda!!

Thanks (6)
Replying to Southwestbeancounter:
By petersaxton
18th Aug 2021 10:48

So why do many of them wait until just before the deadline before providing their data to the accountants?

I'm going to ask for clients to have their online bookkeeping up to date for the 1st of every months or send me their receipts then.

If they are "too busy" I will be "too busy" to guarantee submissions will be done on time.

Thanks (1)
Replying to petersaxton:
RLI
By lionofludesch
18th Aug 2021 10:53

petersaxton wrote:

So why do many of them wait until just before the deadline before providing their data to the accountants?

I'm going to ask for clients to have their online bookkeeping up to date for the 1st of every months or send me their receipts then.

If they are "too busy" I will be "too busy" to guarantee submissions will be done on time.

Can't fault you. It's what I would've done.

Times are changing and taxpayers are going to have to change with them.

Thanks (0)
Replying to petersaxton:
Morph
By kevinringer
18th Aug 2021 13:58

Sounds like a plan and I've tried this with clients but there's always a reason why they don't meet the deadline. I hope you have more success than me.

Thanks (0)
Replying to kevinringer:
RLI
By lionofludesch
18th Aug 2021 14:14

kevinringer wrote:

Sounds like a plan and I've tried this with clients but there's always a reason why they don't meet the deadline. I hope you have more success than me.

You're a kind-hearted soul, Kevin, but failing to make deadlines is their problem, not yours.

I could always cope with the odd tardy client but, if they all were late, some just wouldn't have made it. Ten months is a long time. One month won't be.

That's what changes the game.

Thanks (0)
Replying to Sara Corbett:
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By AdamMurphy
24th Jul 2021 12:10

I'm in exactly the same boat. It's just physically impossible to comply with quarterly filing. My clients with excel or paper record keeping have immaculate records so why the need to change?

Thanks (1)
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By Sara Corbett
23rd Jul 2021 12:34

As an accountant with the majority of my clients being unincorporated sole traders and partnerships it is going to be completely impossible to file all the quarterly returns as well as prepare accounts for all the clients. None of these clients currently use digital software and most have no wish to do so as they either keep paper records or on excel.

HMRC need to look outside big cities and get into the real world.

Thanks (5)
RLI
By lionofludesch
23rd Jul 2021 12:42

A lot of folk are focussing on the "split year" tax assesments whereas the real problem is the bunching of work at the four quarter ends.

Solve that and most of the problems set by this latest revelation will go away.

The deadlines are far too tight. No reason for it other than HMRC don't seem to realise that many small businesses rely on bookkeepers and accountants to maintain their records. Try as you might, it's impossible for all businesses to keep records in real time because most of the owners aren't up to it.

Good news for bookkeeping firms, though. Plenty of work coming along the pipeline.

Thanks (4)
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By David Gordon FCCA
23rd Jul 2021 12:45

Dear snickers
You waited only 10 minutes?
How come you are so privileged?

Thanks (2)
Replying to David Gordon FCCA:
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By snickersinatwix
23rd Jul 2021 12:50

I know!!! I was quite surprised. I then had to wrangle with them for the next 20 to explain why they were wrong and if they did not understand, perhaps I needed to speak to someone who did...............

Thanks (2)
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By mikejlee
23rd Jul 2021 13:13

Will all income have to be included in the quarterly returns? e.g. savings and investment income

Thanks (0)
Replying to mikejlee:
123 Sheets
By 123Sheets
26th Jul 2021 17:52

No, just self-employment, and property rental info quarterly. All other income sources and deductions are done at the year end stage.

Thanks (0)
Morph
By kevinringer
23rd Jul 2021 13:18

"Regulation 11 allows the business to submit a quarterly update early, up to 10 days in advance of the end of the quarter. So there will be an approximate 40 day window to submit the quarterly figures."

No there won't. Clients won't receive bank statements, supplier statements etc until at least the 10th of the month so that's the first 20 days of the 40 days filing period gone. That means we will have 20 days to do an entire quarter's work! Note that the extra 7 days that applies for MTD VAT does not apply for MTD ITSA.

Thanks (4)
Replying to kevinringer:
RLI
By lionofludesch
23rd Jul 2021 13:33

kevinringer wrote:

"Regulation 11 allows the business to submit a quarterly update early, up to 10 days in advance of the end of the quarter. So there will be an approximate 40 day window to submit the quarterly figures."

No there won't. Clients won't receive bank statements, supplier statements etc until at least the 10th of the month so that's the first 20 days of the 40 days filing period gone. That means we will have 20 days to do an entire quarter's work! Note that the extra 7 days that applies for MTD VAT does not apply for MTD ITSA.

Imho, you're not going to be able to do the whole quarter's work inside 20 days for every client if they all have the same quarter end.

There's the challenge. Folk will have to change their ways.

Thanks (1)
Replying to lionofludesch:
Morph
By kevinringer
23rd Jul 2021 13:47

lionofludesch wrote:

Imho, you're not going to be able to do the whole quarter's work inside 20 days for every client if they all have the same quarter end.

There's the challenge. Folk will have to change their ways.


I agree. I have trialled monthly record keeping with a few clients. It vastly increases the amount of time required.
Thanks (1)
Replying to lionofludesch:
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By Southwestbeancounter
23rd Jul 2021 14:17

lionofludesch wrote:

kevinringer wrote:

There's the challenge. Folk will have to change their ways.

I think you should change 'folk' for HMRC!!

Thanks (1)
Replying to Southwestbeancounter:
RLI
By lionofludesch
23rd Jul 2021 17:46

Southwestbeancounter wrote:

lionofludesch wrote:

kevinringer wrote:

There's the challenge. Folk will have to change their ways.

I think you should change 'folk' for HMRC!!

The problem isn't theirs. So they won't.

Thanks (0)
Replying to kevinringer:
By petersaxton
18th Aug 2021 10:50

You get an extra five days - it's two days different from the seven.

Thanks (0)
Morph
By kevinringer
23rd Jul 2021 13:22

If HMRC insist on steam-rollering in a system that is not workable, it'll result in non-compliance. If we can't physically do it, it won't be done. And HMRC haven't got the resources to enforce it either. There are still hundreds of thousands of MTD VAT mandated businesses that are not compliant and HMRC has done diddly squat to enforce (other than issuing letters which can go straight in the bin) despite MTD VAT being mandated for 2 years.

Thanks (5)
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By Ian McTernan CTA
23rd Jul 2021 13:37

The bigger issue isn't the technical changes to year ends, etc.

The biggest issue is getting several million small sole traders/single property rentals to use some form of digital record keeping and setting them up for quarterly reporting.

Most won't want to pay for the additional work involved in all this extra reporting and also for the necessary software that someone will have to use in order to do the reporting. Especially those with one property. Those doing it themselves will of course include the mortgage payment as an expense (as it is actually an expense despite HMRC telling everyone it isn't..Section 24!), can't wait to see HMRC pick all those up....

Will we as agents need to jump through hoops again using one of our TWO different agent systems in order to register as agent for this aspect or will it be covered by existing authority?

Thanks (10)

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