Unincorporated Business Entities - Year End Reviews

 

The new legislation included an announcement and policy note from the government with the intention of the 'proposed transition' during 2022/23, via an extension to the existing basis period, to the 5th April 2022. The proposed change will not mean the accounting date has to alter, but only the way profits are reported. 

 

This change would mean tax liabilities for which businesses and partners are currently able to defer, by reference to the 5th April following their trading year end, will in fact have a their year ends aligned to the 5th April, and will subsequently be 'bought forward'. This alignment would supersede the current rules and could therefore result in higher tax bills from as early as next year. 

 

The impact from this draft proposal, for those businesses with an accounting date of the 30th April, could result in a 'double hit', by reporting for the worst cases nearly two years' profits in one go. 

This change would affect the timing of the tax payment, which would then be due nine months after the accounting year end, instead of twenty one months, affecting cash flow / working capital. 

 

 

For any businesses affected, whereby profits have been adversely implicated as a result of the pandemic, you could benefit from changing year ends before the transition year. Thereby looking to reduce the impact by taking advantage of any reduced profits arising due to COVID-19, by changing to a year end aligned with the tax year before the transition. 

 

* This will be especially beneficial if the change in 2022/23 would mean income tax is paid at a higher tax rate. 

 

We understand the governments proposed change is to simplify the tax system, to help reduce admin & errors / mistakes when filing tax returns, in preparation of 'Making Tax Digital' which starts for Income Tax in April 2023.