On 22 July 2021 we explained that the tax year basis would be introduced from 6 April 2023 to coincide with the commencement of MTD ITSA. As MTD ITSA has been pushed back a year following pressure from the professional bodies, so has the introduction of the tax year basis.
The Basis Period reform policy paper released with the Budget confirmed that the tax year basis will be compulsory for reporting all self-employed profits/ losses, including from partnerships, with effect from 6 April 2024. This is apparently a hard start date although partnerships are not due to join MTD ITSA until April 2025, and complex partnerships from a later date.
The switch from the current year basis to tax year basis will only affect unincorporated businesses who do not currently draw-up their accounts to 31 March, 5 April, or a date in between. However, those businesses will find their taxable income is accelerated, and they may have a particularly difficult transitional year in 2023/24.
In 2023/24 the business will report its profits for the accounting period ending in that year, as usual, plus profits for the period that runs from the end of its reported accounts to 5 April 2024. For a business with 30 September year end, this will be 18 months worth of profits. Any overlap relief available can be set-off in 2023/24 and the excess profits after over-lap relief has been deducted, may be spread over the five years to 2028/29.
In the longer term if such businesses do not change their accounting date, (and there may be strong commercial reasons for not doing so), they will have to apportion profits from two accounting periods to complete their finalisation statement (replacement for SA tax return) under MTD ITSA. This may involve estimating profits from one of those periods, and later amending the finalisation statement to provide the accurate figures.
Written by the Tax Advice Network