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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 Ian McTernan CTA:
Morph
By kevinringer
23rd Jul 2021 13:49

Ian McTernan CTA wrote:

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 ....


Agreed, there's a limit as to how much taxpayers are willing to pay to comply with HMRC. Everyone has their breaking point.
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By mikejlee
23rd Jul 2021 13:55

?

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Replying to mikejlee:
RLI
By lionofludesch
23rd Jul 2021 14:01

mikejlee wrote:

?


??
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By North East Accountant
23rd Jul 2021 14:26

Let the MTDfIT fun begin........

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Replying to North East Accountant:
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By AdamMurphy
24th Jul 2021 21:15

North East Accountant wrote:

Let the MTDfIT fun begin........

..

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By BudgetB
23rd Jul 2021 14:37

If all sole traders/landlords need to report on the same quarter date (realistically a 20 day window not 40 days by the time you have all the info, as someone has pointed out already) then I don't see any option other than to halve my client base of that type of client. I can't physically do of all that work in that time period, every 3 months, and I'm not prepared to either. Those who are happy/prepared to go onto a monthly bookkeeping system can stay, those who want to drop stuff off every 3 months will have to go. Simple as that unfortunately.

Re the 31 March cut off as a reporting period, that's going to be fun for subcontractors who have to work to tax months because that's how the CIS system works!! Unless they are also proposing to also change CIS months to calendar months then subbies deduction certificates are going to be in different tax years to their payments for two months of each year.

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By Mr J Andrews
23rd Jul 2021 14:43

When will HMRC advise Joe Public - the unrepresented taxpayer { sorry - customer } - what's in store for him with the ramifications of MTD ? And what will that advice be ?
Even a so called Number 10 ''Top Advisor'' couldn't spin this nightmare burden into how wonderful the future will be trying to keep businesses going between filing requirements to a Govt Dept incapable of coping with its existing system .
I'm begininning to think , with so much alleged revelations revealed recently , what really goes on with Johnson / Sunak / Harrah etc discussions about this most farcical Revenue crackpot idea to date.
I suggest HMRC set up yet another unaccountable statistical record - ' Number Of Suicide Reported Cases Owing To Inablity To Cope With MTD '

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By lh3f9764bg1g
23rd Jul 2021 15:51

I think the key thing at the moment is . . . . . do virtually nothing and wait to see how this develops. It would be a shame to undertake alot of work on the assumption that we think we know how it is going to pan out. Many of us have gone down that path before - and regretted it. I only say that we should do virtually nothing because there is at least two things we can do 1) advise the clients as to what is coming down the dustpipe and 2) make suggestions as to how you might want to see their record keeping change (and I don't necessarily mean improve - I'm still more than happy to get a load of primary records in my hands rather than a load of digital stuff). Whatever happens, I'll still want to get my hands on those primary records regardless.

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Replying to lh3f9764bg1g:
Morph
By kevinringer
23rd Jul 2021 16:45

That's my policy too, partly because things might (will) change and partly because I'm still too busy supporting clients through Covid and some of them will have ceased trading by the time these changes kick in.

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By geraldw
23rd Jul 2021 16:08

Has any acountancy / tax / trade body ever advised members of HMRC to follow Accountingweb threads to see how the real world operates at the coal face ?

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Replying to geraldw:
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By Open all hours
23rd Jul 2021 16:34

I understand Rebecca B has had the opportunity. Whether or not she took it is another matter. It cannot be left to any one, it must be for us all to raise this with financial journalists, MPs and The Treasury to see if they can help show HMRC the many errors of their blundering ways.

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Replying to Open all hours:
Morph
By kevinringer
23rd Jul 2021 16:47

Agreed that it is up to us all to make a noise and we should not rely on others. I was very active MTD VAT and went to see my MP and I appeared before a House of Lords subcommittee. Not that it did any good because HMRC ignored the House of Lords report and steam rollered MTD VAT through anyway.

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Replying to kevinringer:
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By geraldw
23rd Jul 2021 17:33

So we should all make a noise which HMRC will ignore ?
Whilst I do admire your efforts, what was the point ?

I had hoped that ICAEW et al might have a bit of clout.
The triumph of HOPE over EXPERIENCE

Better not rock the boat and put the knighthood in jeopardy

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Replying to kevinringer:
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By Barkster
23rd Jul 2021 17:43

You might have thought that the various professional bodies, considering the vast sums we pay them, might be out there representing their members views !
And who are the only ones to profit from all this ? The software companies. And you can bet they are lobbying way harder for MTD than the professional bodies are against it. Bet there's some backhanders floating around out there.

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Replying to Open all hours:
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By Jo Nokes
23rd Jul 2021 20:06

I think Rebecca B is fully on board with MTD for SA. She’s s got all her clients on digital accounting. As for ICAEW, their position is that they would rather the new system was voluntary rather than mandated, but they are in regular discussions with HMRC. My view is that they should have refused to engage in any discussions

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Replying to Jo Nokes:
RLI
By lionofludesch
23rd Jul 2021 20:52

Jo Nokes wrote:

I think Rebecca B is fully on board with MTD for SA. She’s got all her clients on digital accounting.

And they can all cope?

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Replying to lionofludesch:
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By Open all hours
24th Jul 2021 12:18

They cope because she does everything for them (condition of acting I understand) including delivery and collection of quarterly records which are refined in boxes she herself supplies.
Can’t fault the service offered but it must come at a premium rate to make it all worthwhile?

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Replying to geraldw:
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By sammerchant
24th Jul 2021 16:17

From what's been happening and the way it is being steamrollered, I would say 'no'.

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Lone Wolf
By Lone_Wolf
23rd Jul 2021 16:48

Too many folk on this thread think they should have some sort of say in these things.

Do what your masters tell you or else!

Do you think you live in some sort of a democracy.

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By whiteways
23rd Jul 2021 21:03

I’ve said it before, and I’ll say it again - it’s not my responsibility to make an unworkable tax policy work.

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By Beef curtains
24th Jul 2021 15:24

"Consultation" my aristotle! They will provide the opportunity to let off a little steam, note carefully what is said and the ignore it completely. Government has decided what it wants and it will just go ahead.

More asinine stupidity from the Treasury and its Revenue lapdog. This is yet another example of what's wrong with our tax system. it must never change, we have to change to fit it, no matter what the cost and inconvenience.

Some civil service timeserver has dreamed up the wildly insane MTD and, so that he/she can get the desired CBE, commerce must suffer the untold cost and inconvenience.

Small business is economically crucial because t is fast moving and enables new approaches and ideas. As ever, our tax system simply provides the means of its destruction.

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Replying to Beef curtains:
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By whiteways
24th Jul 2021 16:11

For some time I've had at the back of my mind a possible solution, though it is somewhat controversial, which I call, "constructive non-compliance".
So far as I know, we've had no details of the penalty regime that will accompany MTD. However, it occurs to me that if the added costs to business, including the extra work involved in digital record keeping, quarterly submissions and commercial software subscriptions exceed the cost of any fine, then businesses may be better off ignoring the changes and paying the fine.

It seems counter-intuitive because accountants are supposed to assist people to comply with the law, but in view of the extreme unworkability of what is being proposed, I wonder whether this may be a time to "think outside the box"?

In the end, it's all about the best way to control costs.

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Replying to whiteways:
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By bendybod
19th Aug 2021 11:38

The penalty regime was communicated last week in an HMRC webinar. VAT and ITSA will be on a points based system (separate from each other). In the case of quarterly returns, from memory, 4 strikes and then you start getting £200 penalties. That is literally off the top of my head though and it is not far enough up my priority list to go checking!

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Replying to Beef curtains:
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By whiteways
24th Jul 2021 16:11

For some time I've had at the back of my mind a possible solution, though it is somewhat controversial, which I call, "constructive non-compliance".
So far as I know, we've had no details of the penalty regime that will accompany MTD. However, it occurs to me that if the added costs to business, including the extra work involved in digital record keeping, quarterly submissions and commercial software subscriptions exceed the cost of any fine, then businesses may be better off ignoring the changes and paying the fine.

It seems counter-intuitive because accountants are supposed to assist people to comply with the law, but in view of the extreme unworkability of what is being proposed, I wonder whether this may be a time to "think outside the box"?

In the end, it's all about the best way to control costs.

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By AdamMurphy
24th Jul 2021 21:16

I've just worked out what MTDfIT really stands for:

MTD?
F*** it

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By seitler
25th Jul 2021 01:01

Unfair to tax businesses with an 30th April year end on 23 months profit. It should be averaged out as it was when Sa was introduced in 96/97

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Replying to seitler:
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By [email protected]
26th Jul 2021 10:37

The consequences of this go way beyond just adding the extra months less overlap.
We will taking current levels of profit, deducting overlap from 1997 (another life) and putting this against one year's reliefs, allowances etc.:

Non-taxpayers paying tax
Basic rate people finding the excess pushed into higher rates
HICBC?
Withdrawal of personal allowances
Restriction of pension contributions

The list goes on.

There will be some very grumpy taxpayers out there.

Can they find the extra tax having budgeted the same as usual? The angst over extra accountancy fees...

And all this just before Bozo is looking to get re-elected...

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Replying to [email protected]:
RLI
By lionofludesch
26th Jul 2021 10:45

robert-AT-freestone-co.co.uk wrote:

The consequences of this go way beyond just adding the extra months less overlap.
We will taking current levels of profit, deducting overlap from 1997 (another life) and putting this against one year's reliefs, allowances etc.:

Non-taxpayers paying tax
Basic rate people finding the excess pushed into higher rates
HICBC?
Withdrawal of personal allowances
Restriction of pension contributions

The list goes on.

There will be some very grumpy taxpayers out there.

Can they find the extra tax having budgeted the same as usual? The angst over extra accountancy fees...

And all this just before Bozo is looking to get re-elected...

If I were in practice, I'd be identifying the clients at risk, deciding whether I should change the year end by a couple of months now to mitigate the effect and then taking advantage of the five year spreading.

Most cases will become manageable.

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By seitler
25th Jul 2021 01:01

Unfair to tax businesses with an 30th April year end on 23 months profit. It should be averaged out as it was when Sa was introduced in 96/97

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Replying to seitler:
RLI
By lionofludesch
25th Jul 2021 04:21

seitler wrote:

Unfair to tax businesses with an 30th April year end on 23 months profit. It should be averaged out as it was when Sa was introduced in 96/97

Rubbish. They have their 11 months overlap relief. There's a chance to spread the excess over five years which could be a massive advantage. This is an opportunity, not a threat. I wish I'd had the chance to spread my overlap excess over 5 years when I retired. Stop whinging.

Averaging? It's just not the same situation at all. I'd be very annoyed if that happened.

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Replying to seitler:
RLI
By lionofludesch
25th Jul 2021 04:22

.

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By agknight
26th Jul 2021 10:26

I have encouraged clients to adopt 31st December year-ends. As this gives them a coherent set of numbers, rather than say year end some random date half way through the year. Particularly in hospitality where to force the year end to just after the start of the season is a pain. 31st December also helps me stagger the workload, over a quiet few months Fenruary-April.

Its appalling that admin is wagging commerce, but unfortunately shows the direction of travel to what will be a complete business failure to deliver competitively within the next twenty years.

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By agknight
26th Jul 2021 10:26

I have encouraged clients to adopt 31st December year-ends. As this gives them a coherent set of numbers, rather than say year end some random date half way through the year. Particularly in hospitality where to force the year end to just after the start of the season is a pain. 31st December also helps me stagger the workload, over a quiet few months Fenruary-April.

Its appalling that admin is wagging commerce, but unfortunately shows the direction of travel to what will be a complete business failure to deliver competitively within the next twenty years.

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Replying to agknight:
RLI
By lionofludesch
26th Jul 2021 10:36

agknight wrote:

I have encouraged clients to adopt 31st December year-ends. As this gives them a coherent set of numbers, rather than say year end some random date half way through the year. Particularly in hospitality where to force the year end to just after the start of the season is a pain. 31st December also helps me stagger the workload, over a quiet few months Fenruary-April.

You'd advise a soccer club to have a 31 December year end ?

It's a mistake to shoehorn every business into something that clearly does not fit.

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Replying to lionofludesch:
paddle steamer
By DJKL
26th Jul 2021 12:19

Well, if you wait until the end of the season to fully finish the accounts you can still deal with the known going concern considerations (relegated or not relegated, that is the question)

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By Rgab1947
26th Jul 2021 12:48

Why not then adjust to make the tax year end 31 March

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Replying to Rgab1947:
RLI
By lionofludesch
26th Jul 2021 13:48

Rgab1947 wrote:

Why not then adjust to make the tax year end 31 March

It's what the Government work to.

Which was my initial thought. Though I like the eccentricity of 5th April.

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By David Gordon FCCA
26th Jul 2021 14:09

Here comes the philosophy
HMRC is constitutionally a "Book-keeping" with Credit control department. This means, as many of you know from experience, that those who work therein have a particular mindset which mostly militates against what we know as "Commercial common-sense". This is fine. Lord save us from tax collectors with imagination. Some of you with experience of certain countries will know this.

As with any large organisation HMRC has a set of persons, probably not more than a dozen, who are the Persons in Substantial Control.
Those are the persons who need to be persistently targeted. Regrettably I do not know who those dozen people are. If you have their names please share this information.
HMRC are tasked with collecting the greatest value of tax with the smallest direct cost to HMRC treasury. This is the organisation's fiduciary responsibility. The PSCs have no concern for the principles of taxation, equity, fair play, and so on. This they leave to their direct masters the 640 or so persons delegated with that responsibility. Unfortunately, collectively, those 640 have no more interest in this task than they have in being the very necessary person walking behind the Lord Mayor's coach with bucket and shovel. It is a messy thankless task.

The police as an organisation have a similar mindset. Maximum crime prevention for minimum cost to the Treasury. In that mindset it would be best to Stop and Search every person with the wrong colour shirt on.
Fortunately for every MP who will not get his hands dirty with tax matters, there are a dozen or so who will get involved with policing principles. The consequence is, unlike some places, the UK's police are constrained in the matter of proper interpretation of law and all that goes with it.
would that these MPs paid similar attention to the effects of our tax system.

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Chris M
By mr. mischief
26th Jul 2021 17:59

Three ongoing issues with HMRC:

1. At least 10 letters sent and paper VAT returns for the client whose MTD links are not working. They have ignored every letter and instead raised assessments, over £10k excess VAT being assessed.

2. 3 letters sent, and paper VAT, for a client who is on MTD but for which the database shows no returns required. £10k in VAT just waiting to be had.

3. 2 letters sent on a 2020/21 CIS claim which they've knocked back for a supposed problem with 2019/20, despite having paid out correctly on 2019/20 in June 2020. They are insisting I file an EYU, which is fine except HMRC themselves scrapped EYUs in April.

What a shambles. HMRC FIX ALL THE NUMEROUS problems in your system, most of them caused by you, before any further mucking around.

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Replying to mr. mischief:
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By Sara Corbett
26th Jul 2021 19:24

Absolutely! I am currently having panicking clients getting final demands from
small employers running into several thousands because HMRC seem to have had a software glitch in September 2020 until the end of 2020.21.
The small employer allowances have been claimed correctly in all the cases. It is a total waste of my time and the clients' blood pressure. HMRC are also refusing to
repay the interest they are now saying is due.
HMRC SORT OUT THE THINGS YOU ARE DOING NOW BEFORE YOU MOVE ON TO NEW THINGS.
It smacks of the changes in 1997 when chaos reigned and again every time they introduce what they say is going to make life easier for clients- HA HA

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Replying to Sara Corbett:
Chris M
By mr. mischief
27th Jul 2021 11:11

You're not alone Sara. I had about 10 of these. In 8 they finally admitted they had failed to process the Employment Allowance submissions correctly, on 2 we are still ongoing. Thanks for reminding me, my previous post was just the top 3!!

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By kdbr
27th Jul 2021 11:47

Have HMRC thought through how they are going to manage the vast rump of unrepresented taxpayers after significant numbers of professionals take the retiral path, or cease to represent small lifestyle traders? This is simply more grist to the mill that MTD should be a process for VAT registered businesses only.

What next for the nation's window cleaners and taxi drivers, driving instructors and tax advisers? And so many more. And for many the year's grace to 2024 disappears, and the retiral plans advance a further year. Just why?

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Replying to kdbr:
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By bluebaron
27th Jul 2021 14:25

Well said, I think there's a good chance that there will be a shortage of accountants in a couple of year's time to deal with all the sole traders MTD. I really hope that it all blows up in HMRC's face, as their dictatorial blinkered attitude is a disgrace.

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By Charlie Carne
27th Jul 2021 13:19

I can see the advantage in basis period reform to align it with the tax year (with apportionment when the AP ends other than 31 March/5 April), though this will impose huge, ongoing burdens on accountants with a large proportion of self-employed clients. But, given that HMRC have last week launched a consultation on basis period reform, it seems crazy not to use that as an opportunity to fix the anomaly brought by having a 5th April tax year-end (a review already being carried out by the OTS).

Unless there is a reasonable chance that the tax year-end be changed to 31 December within the next 10 years, then the huge amount of extra work and complexities (overlap relief and accounting changes, etc.) in aligning basis periods with the tax year would dwarf the additional problems of moving the tax year-end from 5th April to 31st March (especially given that HMRC treat the two dates as equivalent in most situations). This would be an ideal time to make the switch, simplifying PAYE, CIS, benefits payments, and many other things all within the much greater scope and upheaval of MTD and basis period alignment. So lets campaign for a change of tax year-end to 31st March as part of this project.

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Morph
By kevinringer
27th Jul 2021 13:18

Maybe we should all reply to the consultation and feed back our replies to our professional bodies?

Thanks (3)
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By tedbuck
27th Jul 2021 14:03

This all sounds great fun with HMRC getting further into the don't know, can't help, lost the file mode and changing its name to the b***er it let the accountants do the work for us mode.

Perhaps we should retaliate by sending requests for overlap relief details followed by weekly reminders and there must be a few other things which they just ignore like Corporation Tax computations on liquidations (waiting for 8 months is the record so far.)

Yes it will grind the system to a halt (wouldn't take much I suspect) but it would stop them using us to do their work for them. I know we all make mistakes but when you submit a paper return because their system won't work for that client and they then make errors in transferring it onto their system you really do have to wonder if they know what they are doing. So if we decided to make everything difficult for them instead of picking up their pieces at our cost more often than not at least we could feel satisfaction instead of frustration. Retirement here I come!

Thanks (1)
Replying to tedbuck:
By mydoghasfleas
18th Aug 2021 11:19

Grind the system to a halt? It stopped months ago.

Had a letter last week, "Thank you for your letter of 14 September 2020. Your letter has been forwarded to Specialist Team who will review the position". Nada, for 11 months, no word of apology for taking the time to do nothing.

If HMRC working from home is so efficient how are the lag times increasing? Weekly reminders will simply mow down forests, keep the Royal Mail in business and add costs to clients and create some fatberg in the HMRC sewer.

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Replying to tedbuck:
By mydoghasfleas
18th Aug 2021 11:20

Hit the post button twice!

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By wave2dave
05th Aug 2021 09:15

Hi everyone

I wonder if anybody has any thoughts on this scenario please... a business with an August year end wishes to change it's accounting date to 31 March year end so that they are not needing to estimate profits under the proposed new rules.

However, swapping from August to March results in a 19-month basis period which isn't permitted under the rules (any change in accounting date cannot result in a period exceeding 18 months). So if they did it, it wouldn't be recognised by HMRC and, under current legislation, the business would continue to be taxed on an August year end.

Yet the new rules won't tax them to an August year end; the business will be assessed on profits in the tax year. So a formal change to 31 March wouldn't be recognised by HMRC - except it would because that's how it's going to tax things from now on.

I am therefore concluding that the business CAN change to 31 March and even though the tax return will show the year end as 31 August, it'll actually be taxed to 31 March in any case and so everyone is happy.

Is that how others would view a scenario such as this or am I looking at things the wrong way?

Many thanks

Thanks (0)
Replying to wave2dave:
RLI
By lionofludesch
05th Aug 2021 09:59

wave2dave wrote:

Hi everyone

I wonder if anybody has any thoughts on this scenario please... a business with an August year end wishes to change it's accounting date to 31 March year end so that they are not needing to estimate profits under the proposed new rules.

However, swapping from August to March results in a 19-month basis period which isn't permitted under the rules (any change in accounting date cannot result in a period exceeding 18 months). So if they did it, it wouldn't be recognised by HMRC and, under current legislation, the business would continue to be taxed on an August year end.

Yet the new rules won't tax them to an August year end; the business will be assessed on profits in the tax year. So a formal change to 31 March wouldn't be recognised by HMRC - except it would because that's how it's going to tax things from now on.

I am therefore concluding that the business CAN change to 31 March and even though the tax return will show the year end as 31 August, it'll actually be taxed to 31 March in any case and so everyone is happy.

Is that how others would view a scenario such as this or am I looking at things the wrong way?

Many thanks

You need two sets of accounts.

A twelve and a seven.

Job done.

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