Are you ready for the new tax year ends?
HMRC in their infinite wisdom have decided to move everyone's tax year to the archaic medieval date of 5 April. And the burden is now on you to get in line ...
From the tax year 2024/25 onwards, owners of trading businesses will report the taxable profits of those businesses on a tax year basis, rather than reporting the taxable results for the accounting period that ends in the tax year.
Businesses that continue to use an accounting date other than the end of the tax year may find it difficult to establish their results by the deadline for submitting their tax return. For example, currently a business with a year-end of 31 December would use the results of the year ended 31 December 2021 as the basis period for 2021/22. The tax return for 2021/22 is due by 31 January 2023 allowing 13 months for the figures to be finalised.
The new rules will require the profits for a particular tax year to be based on a proportion of the profits for the accounting periods that fall, even partially, within the tax year. In the example of a business with a 31 December accounting year end, the profits for the 2024/25 tax year would be based on nine months from the year ended 31 December 2024 and three months from the year ended 31 December 2025. The results for the latter accounting period may not be known by the 2024/25 filing deadline of 31 January 2026. In such cases, business owners would need to estimate those results and use that as the basis for their tax return submissions.
HMRC’s guidance on provisional figures currently asks businesses to make amendments to provide final figures ‘without delay’. This condition will be relaxed before the start of the basis period transition year in 2023/24.
This is of no benefit to companies, and only acts to accelerate tax take from already stretched and cash poor companies by HMRC.
You will, of course, already have worked out any overlap relief with your tax advisor, but what about the cash flow impact on your business of the calculations and payment dates? Is your forecast of profits for the next two years good enough to ensure you can pay those bills on time?
This is going to cause major headaches (and tax advice bills) for many people with property transactions, overseas income from companies with varying tax years, and partnership incomes.
Apparently HMRC thinks it more important to keep an arbitrary date created by a bizarre ecclesiastical quarter date (24 March) that slipped to 4 April when the Gregorian Calendar came in in 1752 and slipped again because governments cannot accurately manage leap years in 1800. Why was it 24 March and not some other date? Because roads were mud and the “auditor” from the King could not travel over the winter …
Let me know if you want to dig into what this means from a business and cash point of view!