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SEISS: Change accounting date now to save tax

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The receipt of SEISS grants may create a spike in taxable income that can be eased by moving the business accounting date, as Elizabeth Whiteley explains.

18th May 2021
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SEISS grants are taxable and are subject to national insurance in the tax years they are received. This brings the first three grants into the tax year 2020/2021, although the profits the SEISS grants substitute for might have been taxed in a later tax year.

This misalignment of taxable income means up to £21,562 in SEISS grants is potentially taxable at higher rates of tax in 2020/2021, although the trading profits may have been meagre since March 2020. This is particularly the case for businesses with accounting dates early in the tax year.

For some traders, having SEISS grants taxed on a cash received basis amplifies the disruption to their usual pattern of taxable income and related tax payments. The result of bunching income together in one year, and potentially very low income in the next year, means that personal allowances could be wasted in the later year and higher rate tax paid in the earlier year.

It may be possible to mitigate or even improve the short-term outcome for clients with accounting dates other than 5 April, by establishing whether a change of accounting date may be beneficial, particularly if there is overlap relief available.

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Replies (40)

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Liz Whiteley
By Elizabeth Whiteley
18th May 2021 15:28

A free, client-friendly download 'What's my accounting date and should I change it?' is available using code FREECOAD from my website www.cleartaxinfo.online.

Thanks (2)
Replying to Liz Whiteley:
Lone Wolf
By Lone_Wolf
19th May 2021 10:27

Good article, and something we should all be thinking about.

Thanks (1)
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By neiljduncan
19th May 2021 09:44

Hi Elizabeth
Thanks for that, something else to think about!
Personally I have always tried to have sole traders as having 5th April year ends to make my life easier. Although we need to do what is best for clients I am not sure the time (and hence fees) could be justified in doing these complicated workings (including discussions with them to estimate future income) for such small businesses, but it is good to be aware of it.
However, could you please clarify one point which is relevant to returns I am currently doing. Even if the accounts are done on an accruals basis do we include the SEISS grants on a received basis - i.e. we don't include 2/3 of the 4th grant?
Thanks
Neil

Thanks (1)
Replying to neiljduncan:
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By clairechambers
19th May 2021 10:10

Hi Neil,

Don't know if this is of any use to you, but this is the "help narrative" that HMRC provide in the section where you enter the SEISS figure on the Tax Return.

"If you received any payments under the Self-Employment Income Support Scheme (SEISS), only include in this box the amount you were entitled to (subject to further guidance below).

If you have received an assessment issued by an officer of HMRC in respect of a SEISS payment incorrectly claimed, only include in this box the amount you retained.

Do not include in this box the amount of any sum that has been assessed which results in the repayment of a SEISS payment that you were not entitled to.

Include in this box the amount you were entitled to regardless of the dates your books or accounts start and are made up to.

If the amount you were entitled to and received relates to multiple self-employments, or this self-employment and one or more partnerships, only include the amount relating to this self-employment. Apportion the payment between the self-employments, or this self-employment and the partnership or partnerships, on a just and reasonable basis. The total of all apportioned amounts should equal the total amount of SEISS payment you were entitled to and received."

Thanks (0)
Replying to neiljduncan:
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By Ardeninian
19th May 2021 10:20

You're correct. The grants go on the return on a receipts basis, regardless of what you are doing for your accounts. So, in your example, a SEISS4 grant received on say 28 April 2021 will go on the 2021/22 return in full.

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Replying to neiljduncan:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 10:52

SEISS 1, 2 and 3 go on 2020/2021 tax returns (even though SEISS 1 nominally covered March 2020).
SEISS 4 and 5 go on 2021/2022 tax returns (even though SEISS 4 nominally covers February and March 2021).

Thanks (2)
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By Ben Alligin
19th May 2021 09:57

A word of warning. The title of this article is 'Change accounting date now to save tax', yet later in the article you correctly state that HMRC will not accept a change of date for a tax advantage as being a commercial reason. So you fall at the first hurdle; we can hardly cite this article as the reason why we have changed a client's accounting date.

Since it was not permissible to change accounting dates to allow self-employed people severely affected by the Covid pandemic to claim a SEISS grant (through no fault of their own, simply an unlucky accounting date), it is unlikely HMRC will not look very carefully at any change in accounting date to a recipient of SEISS grants.

I would be very wary of changing any clients accounting year end at the moment.

Thanks (4)
Replying to Ben Alligin:
Lone Wolf
By Lone_Wolf
19th May 2021 10:20

If you have a read over ITTOIA 2005 s217, a commercial reason is only required if there has been a change of accounting date in the last 5 years.

If there has not been, then you will meet Condition A of s217 and therefore not require a commercial reason.

Thanks (3)
Replying to Ben Alligin:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 10:56

I don't like the title either! That was an editorial change which I wasn't aware of before publication.
My suggested title was 'SEISS and MTD focus attention on accounting dates'.

It is only a second change within five years which must meet the commerciality test.

Thanks (2)
Replying to Liz Whiteley:
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By Ben Alligin
19th May 2021 12:44

A much better title.

I am sorry I didn't appreciate that an editor could change the emphasis of an article like that. Is your editor tax trained, 'cos their unilateral change considerably affects the slant of your article. You might want to have a word with them!!!

Many thanks also for the clarification on the 5 year condition, along with Lone Wolf.

Thanks (1)
Replying to Ben Alligin:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 16:46

Thanks, Ben. I've done as you suggested and had a word. Have to wait and see if the title can be changed back to what I had suggested, because the title it was published under does skew the article away from its intended neutrality.

Thanks (0)
Replying to Liz Whiteley:
Liz Whiteley
By Elizabeth Whiteley
20th May 2021 10:40

Sadly I have been told that the editor's decision is final and that the Accountingweb site lives or dies by the volume of traffic, and the main thing that makes people read an article is the headline - it needs to grab readers attention, even if that changes their view of the article.

It feels a bit galling to be taking flak for that myself - another life lesson learned.

Thanks (1)
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By Thorsten Orr
19th May 2021 09:58

Erm...on top of everything else at the moment?

Thanks (5)
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By KenKLM
19th May 2021 10:03

As if we have not got enough to worry about you now encourage tax avoidance when so much of the SEISS grants have been dubiously claimed . Totally inappropriate in my view .

Thanks (5)
Replying to KenKLM:
Lone Wolf
By Lone_Wolf
19th May 2021 10:26

Wow. I hope you have a decent PI policy, or your clients find themselves an accountant who will not have them paying additional tax when it is not necessary.

Your opinion that some folk have dubiously claimed SEISS grants would have you neglect to tell clients of perfectly acceptable tax planning to mitigate their liabilities, in a year where that might be most important to their businesses survival.

I see you've been a member here since 1999 - have you been advising clients all that time? What other unnecessary tax have you inflicted on them because you feel it is "totally inappropriate" for them to take steps to mitigate it I wonder?

Thanks (3)
Replying to KenKLM:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 11:04

I don't see following HMRC's rules specifically laid out to allow for changes to accounting dates, with copious examples, as tax avoidance. It's perfectly proper professional conduct in relation to taxation. The article doesn't encourage anything other than making sure that the rules are followed, should it be in a client's best interests.

I don't see following HMRC's rules on, for example, claiming capital allowances as tax avoidance. Do you?
What is the purpose of the rules otherwise?

Thanks (0)
Replying to KenKLM:
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By mobilejo
22nd May 2021 20:42

Please tell me you're not an accountant.

Your opinion is something you are entitled to, but I would hate to be the business owner supposedly paying you to do what is in MY best interests, when your loyalties appear to lie with HMRC.

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By Homeworker
19th May 2021 10:32

My client has wanted to move from a 30 April year end for many years but as she only has a small amount of overlap relief available the time has never been right until now, so we will definitely be making the change. My question though is will the 4th SEISS grant then be based on the turnover for the full 23 months in the tax return, without any reduction for the overlap claim? I suspect it will.

Thanks (0)
Replying to Homeworker:
Kitten
By Hazel Accounts
19th May 2021 11:02

That doesn't make sense - 4th grant is based on tax return already filed.............

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Replying to Homeworker:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 11:09

SEISS 4 is based on 2019/2020 (and earlier) tax returns.
A change of accounting date in 2020/2021 won't affect that.
Changes of accounting dates in 2019/2020 (and other relevant earlier years) will have had an effect on SEISS 4.

If we all find ourselves in the horrendous position of there being a SEISS 6 or later versions which relate to 2020/2021 tax returns, changes of accounting dates in 2020/2021 would most likely affect the amount of SEISS 6+.

Thanks (0)
Replying to Homeworker:
David Ross
By davidross
19th May 2021 11:14

You mention a time bomb that I have been banging on about for years. We changed all clients to 31 March/5 April back when Self Assessment came in. Took a lot of work but I have slept well since.

I view all playing about with accounting dates as tricky-dicky and am pleased to see that the community is pushing back against this silly article.

Thanks (2)
Replying to davidross:
Lone Wolf
By Lone_Wolf
19th May 2021 12:32

Behave yourself. There is nothing silly about the article at all and is something we should all be thinking about this year in particular.

If you struggle to deal with accounting periods not matching the tax year then I suggest you work on that.

Thanks (5)
Replying to Lone_Wolf:
David Ross
By davidross
20th May 2021 18:09

For a start, Overlap Relief should not exist, it was only brought about because the Accountancy Profession (for their own selfish reasons) resisted a harmonisation with the Tax Year. Those who kept 30 April should have foreseen that 20+ years later, a figure that was not indexed nor a proportion of profit would be inadequate to offset having to pay tax on up to 23 month's profit at current rates. It is not just inflation but natural growth in a businesses' success that causes this problem.

I inherited a client who had this issue - sadly he hanged himself (for other reasons!) before I could manage him out of it. There are tactics that can be employed but not if the business ends suddenly for such reasons as death, retirement or moving into employment.

As for paying extra tax because of SEISS, how many will this affect? Those who were on over £50,000 could not qualify so Higher Rates are unlikely for most clients - unless of course they have PROFITED from it because it has pushed their income up!

Thanks (1)
Replying to davidross:
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By Homeworker
24th May 2021 11:26

davidross wrote:

You mention a time bomb that I have been banging on about for years. We changed all clients to 31 March/5 April back when Self Assessment came in. Took a lot of work but I have slept well since.

I view all playing about with accounting dates as tricky-dicky and am pleased to see that the community is pushing back against this silly article.


The problem for my client is that her overlap profit was c£25k and her profits were over £60k a year when I got involved, so she would potentially have lost some or all of her personal allowance and had a very large tax bill if we had changed it back then. How would that have helped her.
Thanks (0)
Replying to Homeworker:
David Ross
By davidross
25th May 2021 11:49

Since you inherited a client who had been badly advised in the past, you are making my point for me. Unless a new adviser can work some magic, the poor client has a big liability down the line.

Techniques I have employed include partial migration of the business into a company (where distinct operations can be separated), allowing some current income to be kept in the company until later and self-employed profits to decline to a level at which the Overlap Relief covers the extra charge resulting from the cessation.

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By john hextall
19th May 2021 10:54

Whilst I am generally in favour of claiming whatever you are offered in the current circumstances, there is a certain amount of moral pressure to only claim what you really need. If the receipt of a SEISS grant as a self employed person pushes you into a higher tax bracket, I think there is a case for asking whether you can justify receiving it. The case for changing accounting dates to avoid paying the extra tax is flimsy at best.

Thanks (1)
Replying to john hextall:
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By Homeworker
19th May 2021 11:07

Her income has fallen off a cliff since March 2020. It is the profits for the year ended 30th April 2020 that are the problem....and she is changing accounting dates mainly because she has never understood why she is paying tax now on income from two years earlier (I wasn't acting for her in those days - it was a long time ago). It will be far easier for her to understand where her tax bill comes from if it is based on the actual year in question.

Thanks (1)
Replying to john hextall:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 11:16

I agree that SEISS should only be claimed where needed.
If SEISS were to have been taxed in the same year as the profits for which it substituted, there would have been less of a roller-coaster tax ride for traders with accounting dates early in the tax year.

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By RG
19th May 2021 11:54

You say
"2. A notice of the change of accounting date must be given
This is done by ticking the relevant box on the self assessment tax return for the year of change. This will usually mean a deadline for making the change of 31 January 2022 for accounting date changes that take effect in 2020/2021."
I have a client that started trading in 2019/20, and hardly traded and did not receive SEISS in 2020/21, and I had intended to looka at revising 2019/20 as an 18 month accounting period, and re-submitting 2020 at the same time as sbmitting the 2021 tax return.
Are you saying that the deadline to amend the accounting date for 2019/20 is 31 January 2021?

Thanks (0)
Replying to RG:
Liz Whiteley
By Elizabeth Whiteley
19th May 2021 12:19

Your client who started trading in 2019/2020 is still in the early years of his/her business, for which there are different rules for determining basis periods as set out in HMRC's Business Income Manual page 81000 and following pages.
The conditions above apply to businesses in their fourth or later years of trading, as mentioned in the article.

Thanks (0)
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By Ian McTernan CTA
19th May 2021 12:00

Thanks for the good article.

I'd remind everyone that you also need to look at the business in the round rather than just concentrate on whether there will be a small tax advantage in a change of accounting date this current year.

Seasonal businesses, massive spikes when everything re opens, ease of explaining it to the client (and getting them to stick to it), changing the date in their accounting software, etc should also all be borne in mind. Not to mention the knock on effect of when the dread MTD 4 reporting periods kick in.

Still, it is something we should all consider and should be considering all the time- not just in this very strange covid times.

Thanks (2)
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By Max Maxwell
19th May 2021 12:45

Good article. Thanks.

I also read that changing the accounting date to 31 March will delay the MTD for income tax by another year, since that kicks in on 6 April 2023, and clients with a year ending on 31 March 2023 wont have to comply for another year

Thanks (0)
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By johnjenkins
19th May 2021 13:19

Isn't the idea of self assessment to pay tax on the profits in the year that they were made?

Thanks (1)
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By C J EYRE
19th May 2021 14:41

Hi Liz

Great to read your article. Nice to see you have taken and developed my suggestions about changing a year end to reduce a tax liability because of SEISS.to you in response to your article on 27 April.

There still appears to be some doubting Thomas about this method, as there was to my original reply.

Personally I have already submitted one Tax Return using this method. I am still waiting to see if the Revenue are going to challenge it. However, they appear to have processed the Tax Return at this stage without any problems

Thanks (1)
Replying to C J EYRE:
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By Not Anonymous
19th May 2021 20:00

C J EYRE wrote:

Hi Liz

Great to read your article. Nice to see you have taken and developed my suggestions about changing a year end to reduce a tax liability because of SEISS.to you in response to your article on 27 April.

There still appears to be some doubting Thomas about this method, as there was to my original reply.

Personally I have already submitted one Tax Return using this method. I am still waiting to see if the Revenue are going to challenge it. However, they appear to have processed the Tax Return at this stage without any problems

They still have plenty of time to open an enquiry, processing the return as submitted doesn't mean it won't happen several months from now.

Thanks (1)
Replying to Not Anonymous:
Lone Wolf
By Lone_Wolf
20th May 2021 09:58

You're correct of course. But given what they have done is perfectly acceptable under the legislation, it would be a completely pointless enquiry.

Thanks (1)
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By John Marshall
19th May 2021 16:50

You state the 1st 3 grants are all taxable in 2020/21. My understanding is that this only applies to sole traders as SEISS grants paid to members of a partnership may, depending on a bunch of circumstances, choose to have the grants shown as income of the partnership and shown in partnership Accounts thus taxed on an "accounts year basis"...

Thanks (0)
Replying to John Marshall:
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By Geoff56
19th May 2021 17:12

That's correct. The crucial factor per the legislation, is that the grant is distributed amongst the partners, rather than being retained by the individual partner.

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By fawltybasil2575
19th May 2021 19:56

@ John Marshall (your 16.50 post) and others.

I am sure that Elizabeth is fully aware of the exceptional case of SOME Partnerships (as per the legislation referred to at the end of this post). In essence:-

(1) Sole Traders. In the case of a Sole Trader, the Grants are taxable in the year in which they are received (2020/21 in the case of SEISS 1/2/3 Grants).

(2) Partnerships.

(i) In the case of a Partnership, the Grants are, in the vast MAJORITY of cases (ie where the SEISS Grants are retained by the individual Partners) treated exactly in the same way as for Sole Traders.

(ii) In a small MINORITY of cases (“exceptional" cases) where the SEISS grants are distributed, by the Partners, to the Partnership, the SEISS Grants become PART OF the Partnership’s trading income, and thus become part of the Partnership’s Taxable Profits for the basis period.

By way of example of an “exceptional” case, an established Partnership with a basis period of the year to 31 October 2020. The overall effect is, in that “exceptional" case, and where the SEISS Grants are received AFTER the end of the basis period, but BEFORE 6 April 2021, they are ultimately assessed in the 2021/22 Tax Year (as part of the Partnership's Taxable Profits for the year to 31 October 2021).

[There is arguably an element of “tax planning” available here- where, for example, the SEISS Grants are retained by the Partners, such that one or more Partners' income is pushed into a Higher Rate for 2020/21 (and assuming that the position cannot be remedied by the change of accounting period which is the essence of Elizabeth’s article) it may be advisable for the Partners to agree to treat the SEISS Grants as Partnership Income. I intentionally said “arguably” as some commentators might state that such “after the event” planning is either illegal or unethical – I shall not comment either way].

See Para (3)(4) of Schedule 16 of Finance Act 2020, here, for the legislation:-

https://www.legislation.gov.uk/ukpga/2020/14/schedule/16/enacted

Basil.

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By Martin B
20th May 2021 09:02

SEISS: Change accounting date now to save tax.
For future reference

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