Call to delay major change to how profits are taxed

20 July, 2021

The Association of Taxation Technicians (ATT) is calling for a delay to a major change in how trading profits are assessed for tax purposes, as well as appealing for more consultation time and a clear roadmap leading up to the proposed introduction of the proposals. The ATT worries that advisers to affected businesses will not have time to give enough feedback to government before the change comes in – and the pace of change may overwhelm many businesses.

In a consultation document1 published today (Tuesday) alongside draft legislation, HMRC propose that from 6 April 2022, 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 change to basis periods is due to come in a year before the introduction of Making Tax Digital for Income tax (MTD for Income Tax) in April 20232 – another huge change for unincorporated businesses.

The change to basis periods would make little or no difference for the many businesses which already have a 5 April (or 31 March) year end. But for those with accounting years which do not align with the tax year, the planned changes are very significant.

Jon Stride, Co-Chair of ATT’s Technical Steering Group, said:

“The proposal to tax businesses on profits arising in the tax year itself is sensible and will eventually simplify matters for unincorporated businesses. We also support bringing in the change in advance of the introduction of MTD for Income Tax.

“But it is vital that the design and implementation is fully considered and not rushed if it is going to work for businesses and the Government. Given all the current upheaval for businesses, both this change and the MTD roll-out should each be delayed by a year. This would mean the move to taxing profits in a tax year would start in April 2023 followed by the introduction of MTD for Income tax in April 2024.”

The ATT is also concerned that the consultation period for this major change is only six weeks – half the 12-week period recommended in government guidance3 - and coincides with the main summer holiday season. Provided that the commencement date can be pushed back, the ATT recommends an extension of the consultation deadline to 30 September 2021.

Jon Stride said:

“Pushing back both the start of MTD for Income Tax and this new proposal would give time to ensure that the basis period change works as smoothly as possible – and it would also allow a full 12-week consultation period.

“HMRC’s consultation recognises the wide range of issues which will require detailed consideration in finalising the design of the necessary legislation to implement the basis period change.4 It is important that HMRC has the opportunity to consider representations from all those who will be impacted by the basis period change. Bodies such as the ATT will need to consult with their members to identify relevant issues. It is difficult to see how that could be done effectively over the holiday period between now and 31 August. That is why we are calling for an extension of the consultation period to 30 September.“

The ATT is also urging HMRC to publish a detailed roadmap setting out the further stages of consultation, testing and implementation leading up to that date.  

Jon Stride said:  

“Regardless of whether delays to the plans are possible, it is essential for HMRC to give a clear indication of the steps towards implementation of the basis period changes between now and April 2022 so that businesses and their advisers can identify relevant issues needed to manage the transition."

Notes for editors

  1. HMRC’s Basis period reform consultation document is here.
  2. For a brief summary of MTD for Income Tax, see here.
  3. See Code of Practice on Consultations (HMG 2008).
  4. HMRC’s consultation identifies the following issues as requiring consideration:
  • Apportionment mechanics
  • Estimation of provisional profits
  • Business cessations
  • Change of accounting date
  • Partnership issues
  • Capital allowances
  • Cash basis
  • Losses
  • Other claims and elections
  • Payment of tax and payments on account
  • Double Taxation Relief
  • Trusts and estates with trading income
  • Non-resident companies charged to income tax
  • Averaging of fluctuating profits
  • National Insurance Contributions
  • Student finance repayments
  • Tax Credits
  • High Income Child Benefit Charge