HomeHMRCHMRC wants views on correcting estimated figures in tax returns

HMRC wants views on correcting estimated figures in tax returns

HMRC wants views on how owners of unincorporated businesses with accounting year ends that differ from the tax year end could correct estimates in their returns.

On 6 April 2024, the current basis period rules for unincorporated businesses will be scrapped. From 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.

Transitional rules apply for 2023/24.

Changes may bring about difficulties

According to the ICAEW, this change may cause difficulties for businesses that continue to account for a period end that differs from the end of the tax year.

It said: “The profits for a particular tax year will be taken as a proportion of the profits for the accounting periods that fall partially within the tax year. The results for the last such accounting period may not be known by the deadline for submitting the corresponding tax return. In such cases, business owners would need to estimate those results and use that as the basis for their tax return submissions.

“For example, in the tax year 2024/25, a business with a 28 February accounting period date would take 329 days of the results for the period ended 28 February 2025 and 36 days of the results for the period to 28 February 2026. The return for that tax year would be due by 31 January 2026, which is earlier than the accounting period end date of 28 February 2026.”

But current rules could ‘significant administrative burden’

It added: “Under existing rules, if estimates are used in a tax return which are then amended when the final results become known, the amendment needs to be made to the tax return as soon as possible. Businesses then have 30 days to pay any additional tax due after the date of the amendment. Late payment penalties are not due unless any additional tax liability is not paid within this 30-day window.

“HMRC recognises that more businesses will need to include estimated figures in their returns going forward and that this may create a significant administrative burden for some.

“It is consulting on three alternative options for correcting estimated figures. These options were already set out in the summary of responses to the original consultation on basis period reform.”

The consultation closes on 27 May 2022.

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