The Finance Bill 2022 will abolish 'basis periods' for businesses that usually pay Income Tax on profits they calculate on a current year basis. This will change to 'tax year basis' for Making Tax Digital.
"Losses will be those arising in the tax year!"
When self-assessment was first introduced in 1995/96, income tax from an unincorporated business was changed from the 'prior year basis' to the current year instead. MTD has changed all this.
Making Tax Digital for Income Tax starts in April 2023, and the reporting of your accounting data will be aligned with the tax year. Any accounting year-end between the 31st of March and the 4th of April will be deemed as ending on 5th April and so should see no difference.
Businesses with a 30 April year-end, which traditionally includes lawyers and accountancy firms, will be particularly hit in 2022/23 as they have to report profits for the period from the 1st of May 2021 to the 5th of April 2023 in that year. Although, there will be a transitional relief to spread the income falling in 2022/23 over five years to 2026/27.
Where the business has overlap relief arising from when it started in business, that overlap relief will be offset against profits in 2022/23. Any income or expenditure after the end of the new accounting period will fall into the next tax year. This applies to both trading and property businesses.
"The majority of unincorporated businesses will not be affected!"
HMRC want to simplify the processes needed to implement Making Tax Digital for Income Tax, so this change will remove the future need for up to 13 MTD filings and multiple VAT filings too.
Until next time ...
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Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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