More tax changes ahead!

Last year, the government set out its thoughts on modernising the tax system over the next 10 years – with a focus on going fully digital and working closer to real time. Kate Arnott from MHA summarises what this could mean for professional practices.

Basis periods

The proposed reform of basis periods seeks to end the calculation and use of overlap, which will result in income being taxed at the relevant point in the tax year. It also proposes that for periods after April 2023, income should be apportioned to the actual period in which it arises.

The proposal brings to light two considerations for those not using 31 March as the year-end – the use of overlap, and – for partnerships – the allocation of proportional profit at partner level.

This is potentially the most significant change for legal practice sole traders and partnerships. Experts at MHA have considered these proposals in detail and have set out some key considerations and planning points to be aware of.

Fiscal year end

The Office for Tax Simplification is exploring the potential for moving the end of the tax year, focusing on two specific dates – 31 March and 31 December:

31 March. As both the end of a quarter and the nearest month to the current tax year end, this is also when the UK government makes up its own accounts to, and by, reference to which corporation tax rates apply. The difference of five days (from 5 April to 31 March) is unlikely to cause an issue for most businesses.

31 December. Moving the year end to 31 December would result in a shortening of the tax year by three months and five days and would bring it in line with many major tax regimes. While potentially an advantage for individuals and companies based in multiple jurisdictions, it will cause issues during the transition year for those not currently using this date.

Making tax digital (MTD)

The introduction of MTD for individuals has been pushed back to April 2024, when there will be a shift from annual to quarterly reporting. With the general direction towards reducing the gap between profits being generated and tax being paid, we wouldn’t be surprised to see the acceleration of tax payments from half-yearly (payments on account and balancing payments) to quarterly (and balancing payment) in the future.

The corporate reporting regime will not be mandated before 2026. Read more about new tax proposals and their implications here.