Accounts Basis Period Reform – Consultation 22nd July 2021 Under current rules, businesses draw up annual accounts to the same date each year. The profit/loss for the tax year is usually the profit/loss for the year to the accounting date – called the basis period. Tax is paid on profits earned in the basis period ending in the tax year in question. However, in a consultation document published alongside draft legislation, HMRC propose that from 6 April 2022 all unincorporated businesses should be assessed on the profits which they actually earn in any tax year to 5 April (or 31 March), regardless of the accounting date. HMRC would like to gather views on the matter from ‘businesses, their advisers, representative bodies, tax software providers and other interested parties’ before the consultation closes at 11:45pm on 31 August 2021. The change to the basis period rules is currently expected to come in a year before the introduction of Making Tax Digital for Income Tax and Self Assessment in April 2023. This proposal would mainly affect unincorporated businesses that do not draw up their annual accounts to 31 March or 5 April, plus those in the early years of trade. It would clearly introduce an additional layer of complexity for those businesses. The chair of the Chartered Institute of Taxation (CIOT) has said: “CIOT believes this will effectively force these businesses to change their accounting date to 5 April or 31 March in order to avoid this additional complexity. This may not be an issue for some businesses, but undoubtedly there will be some who will want to continue to use their existing accounting date for commercial reasons. These businesses will need to quickly weigh up the costs and benefits of keeping their accounting date compared to moving it to 5 April or 31 March.” Both the CIOT and the Association of Taxation Technicians (ATT) have raised concerns about the speed at which the change is being introduced. The recent ATT press release can be found here. Please speak to your Whiting & Partners contact if you would like further information.