The government has announced that reforms to the taxation of unincorporated businesses, known as basis period reform, will go ahead from April 2024, but the transitional year is 2023/24. While for businesses with an accounting year end between 31 March and 5 April this will mean no change, for other businesses it is likely to bring forward the date on which taxable income will need to be calculated and tax on those profits will need to be paid.
It also brings the timing of the basis period reform in line with the start of Making Tax Digital for income tax for many of the same businesses.
With two major changes to handle at once, what are the options for those businesses affected and how should practitioners advise them to approach the challenge?
In this extended webinar the Tax Faculty team explain the new rules and how the timing will work.
Following discussions with HMRC, we have established that two aspects of the new rules are intended to work differently to how this was explained in the webinar.
- Capital allowances will be calculated for each accounting period and then allocated to tax years on a pro-rata basis as part of the business' overall taxable profit or loss result for each accounting period.
- Although transition profits are left out of the calculation of total profits, the additional income tax due on those transition profits is brought into account later in the income tax calculation. This later stage may cause PAs and other allowances t be lost.
These two points are explained in detail in the TAXguide accompanying this webinar.
First broadcast 17 February 2022