3rd March 2022
Making Tax Digital (MTD) for income tax will take effect from April 2024. The introduction of MTD will be a significant move to a more digitalised tax system, which will result in eligible individuals (from April 2024) and partnerships (from April 2025) being required to file quarterly submissions to H M Revenue & Customs, along with keeping digital records.
The introduction of MTD for income tax will also see a new penalty regime, which can be seen here, along with a change to how self-employed/partnership profits are tax is summarised below.
Our MTD for income tax webinar on 9 March 2022 will provide more information – register here.
Basis Period Reform
At present, self-employed/partnership profits or losses are generally based on the set of accounts ending in the tax year, known as the ’current year basis’.
The new rules, being introduced with MTD for income tax, will be a ’tax year basis and come into effect from the 2024/25 tax year. The tax year basis will mean that individuals will be taxed on profits (or utilising losses) that arise in the tax year, rather than the previous method where it was based on the accounting period that ended in the tax year.
Individuals/partnerships with an accounting date other than the end of the tax year and who choose not to change their accounting date will therefore need to apportion profits/losses from different accounting periods for the ’tax year basis’. This will likely result in using provisional figures in tax returns before submitting final figures once the later accounting period taxable profits have been finalised. In order to move from the ‘current year basis’ to the ’tax year basis’ there will be a transitional period in the 2023/24 tax year.
We strongly recommend that you speak to your normal haysmacintyre contact as soon as possible if you think the above may affect you.
For more details about MTD or any of the above, please contact Alfie O’Dell or your usual haysmacintyre contact.