ATT urges HMRC to fix problems with tax reporting reform

The Association of Taxation Technicians (ATT) is calling on HMRC to address problems in their plan to change how partners and sole traders calculate their taxable profits each year.

At the Budget on 27 October, it was confirmed that reform of the basis period rules1 will go ahead from April 2024, with a transitional year from April 2023.

Michael Steed, Co-chair of ATT’s Technical Steering Group, said:

“Today’s announcement provides some welcome certainty, allowing affected taxpayers to begin preparations for the potentially significant additional administrative burdens and tax bills which could arise from this reform.”

The ATT had previously called2 for basis period reform to be delayed from its originally planned introduction date of April 2023 (with a transitional year from April 2022). Such a delay was confirmed by the Government on 23 September 2021.3

Michael Steed said:

“We were glad to see the Government listen to the ATT’s call for more time before introducing basis period reform. But it is vital that HMRC make use of this extra time to further explore how the practical and financial impacts on relevant businesses could be limited.

“In particular, once basis period reform is introduced, some businesses may be required to estimate a portion of their taxable profits each year, and then correct their position once their final results are known. HMRC’s efforts should be directed towards making this process as streamlined and simple to apply as possible, to limit the ongoing time burdens and costs involved.”

Legislation for basis period reform will be included in Finance Bill 2021-22, which is due to be published on 4 November 2021.

Michael Steed said:

“Our response to HMRC’s previous consultation4 highlighted concerns about how any extra profits arising on the changeover to the new regime could affect existing allowances and charges, such as the tapering of the personal allowance for high earners, and the High Income Child Benefit Charge. We therefore welcome the indication from HMRC5 that the legislation will be revised to reduce the impact of these transition profits on allowances and benefits, and look forward to commenting on the detailed legislation in due course."


Notes for editors

1. Under these reforms, from 6 April 2024, the profits of all unincorporated businesses should be assessed on the profits which they actually earn in any tax year to 5 April (or 31 March). Under current rules, businesses pay tax on the profits earned in their accounting year which ends in that tax year.

The proposed changes will not affect the majority of unincorporated businesses that already have a 31 March or 5 April year end, but those who are affected face potentially significant one-off and ongoing administrative burdens and tax bills.

2. See https://www.att.org.uk/technical/news/att-calls-delay-tax-reporting-reform  

3. In a Written Ministerial Statement issued on 23 September 2021, it was confirmed that any reform of the basis period rules will not take place until April 2024, with a transitional year not coming into effect earlier than April 2023.

4. The ATT’s submission on basis period reform is here.

5. See the policy paper on basis period reform published 27 October.

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