8th November 2021 Posted by - Alexander Accountancy
The government announced back in September that the introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) has been delayed by one year until April 2024. There had been widespread concerns on the speed of the MTD for ITSA rollout and the delay was widely welcomed.
In tandem with this announcement, the government also announced that proposals for Income Tax basis period reform would also be delayed until the 2024-25 tax year with 2023-24 being a transitional year. The proposals change the basis period from a ‘current year basis’ to a ‘tax year basis’. Under the current rules there can be overlapping basis periods, which charge tax on profits twice and generate corresponding ‘overlap relief’ which is usually given on cessation of the business. The new method of using a ‘tax year basis’ removes the basis period rules and prevents the creation of further overlap relief.
HMRC has published a new policy paper on this change. The paper confirms that the measure will only affect businesses which draw up annual accounts to a date different to 31 March or 5 April (mainly seasonal businesses and large partnerships), and businesses that commence from 6 April 2024. On transition to the tax year basis in the tax year 2023 to 24, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.
