This change to the basis period will only apply if the taxpayer does not have a 31 March, or 5 April, year end. Many traders have a 30 April year end and year ended 30 April 2022 will form the taxable profits for the tax year to the 5 April 2023. But for the tax year 2023/24 the taxable income will be the profits from 1 May 2022 to 31 March 2024 (or 5 April 2024), from this there will be deduction for overlap relief (if there is any). HMRC are planning to allow part of the extra profit to be calculated and spread over five years which includes 2023/24, but, if the business ceases early, the amount spread becomes immediately taxable.
Thereafter the tax return will include the profits for the year ended 31 March or 5 April. If the business year end does not tie into these dates, there will have to be a recalculation to ensure the correct profit is taxed. Probably a time apportionment.
This is likely to increase tax liabilities for 2023/24 and moving forward.
Making tax digital
From 6 April 2024 (less than 2 years away) self-employed and property landlords with incomes over £10,000 will have to file with HMRC digital information on a quarterly basis.
The first submission will be for the period 6 April 2024 to 5 July 2024 (or 1 April 2024 to 30 June 2024) regardless of the accounting year of the taxpayers. The deadline for submission will be 5 August 2024 and so on.
These submissions will include the analysis on expenditure and are expected to follow the current information boxes used, as well as the current self-assessment boxes, on the annual tax return. This is more information than is currently provided under the MTD for VAT. Each year there will be a 5 return with the personal tax return which will show the adjustments made to finalise the numbers. This will allow HMRC to see accurate the numbers provide quarterly are.
After 2024 it is expected that MTD will be brought in for partnerships and eventually for companies.
Actions
If you do not have a 31 March or 5 April yearend, do not move your current yearend until 5 April 2024, so you can benefit from the income spreading.
Do digitise your records, and improve your record keeping, to reduce the final amendments required in the future. The sooner this is put into practice the easier it will be when the returns are needed in 2024.
The next step
At UHY we can assist you on the choice of digital records and provide training to improve the records. If you require assistance, please contact your local office.
