The government is proposing a change to the basis from which profits are taxed. This will affect profits from the ‘current year basis’ to the ‘tax year basis’ in 2022-23 and is in preparation for MTD for income tax to begin on the 6th of April 2023.
For this reason, unincorporated businesses that draw up accounts to a date other than on or between the 31st of March or the 5th of April may need to be prepared for a slighter bigger than average tax bill for 2022-23.
What Do These Changes Mean For Businesses?
So let’s put this into real-life terms. The Hill Farm partnership’s accounting year ends on the 30th of September. In the tax year 2022-23, the partners of Hill Farm are taxed on the profits made for the accounting year up to the 30th of September 2021. However, for the tax year 2022-23, the partners will have to report to HMRC the profits made in the 18 month period from the 1st of October 2021 to the 5th of April 2023, the usual 12 months to the 30th of September and the extra period to the end of the tax year.
Using this total, any overlapping profits can be deducted to calculate a liability for the year. Although this will result in extra profits being taxed compared to what they would have been beforehand, the profits can be spread over a maximum of five years.
With this in mind, HMRC is not requesting that businesses change their accounting year. However, where the accounting period does not match the tax year, an apportionment of profits from two sets of accounting will be required to calculate the figures needed for each tax year. In light of this, it may be easier for businesses to draw up accounts to the tax year end or to the 31st of March.
Contact Us For Further Advice
Both these figures and the associated potential year end change will need to be considered in detail before making a decision. We would be more than happy to talk you through the different options that would be best suited to your business. Please contact us to get started.