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HMRC urged to fix problems with tax reporting reform

HMRC needs to address problems in their plan to change how partners and sole traders calculate their taxable profits each year, according to the Association of Taxation Technicians (ATT).

At the Budget on 27 October, it was confirmed that reform of the basis period rules will go ahead from April 2024, with a transitional year from April 2023.

Michael Steed, Co-chair of ATT’s Technical Steering Group, said that the announcement “provides some welcome certainty, allowing affected taxpayers to begin preparations for the potentially significant additional administrative burdens and tax bills which could arise from this reform.”

Further exploration needed

The ATT has called in the past for basis period reform to be delayed from its originally planned introduction date of April 2023 (with a transitional year from April 2022). Such a delay was confirmed by the Government on 23 September 2021.

Steed added: “We were glad to see the Government listen to the ATT’s call for more time before introducing basis period reform. But it is vital that HMRC make use of this extra time to further explore how the practical and financial impacts on relevant businesses could be limited.

HMRC urged to make process ‘streamlined and simple’

“In particular, once basis period reform is introduced, some businesses may be required to estimate a portion of their taxable profits each year, and then correct their position once their final results are known.

“HMRC’s efforts should be directed towards making this process as streamlined and simple to apply as possible, to limit the ongoing time burdens and costs involved.”

Legislation for basis period reform will be included in Finance Bill 2021-22, which is due to be published on 4 November 2021.

Steed concluded: “Our response to HMRC’s previous consultation highlighted concerns about how any extra profits arising on the changeover to the new regime could affect existing allowances and charges, such as the tapering of the personal allowance for high earners, and the High Income Child Benefit Charge.

“We therefore welcome the indication from HMRC that the legislation will be revised to reduce the impact of these transition profits on allowances and benefits.”

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