This proposal is expected to affect all independent merchants and partners with business income who do not currently create their accounts by April 5 or March 31. It simplifies the method of allocating business profits to specific taxation years by removing the existing complex base period rules and replacing them with a much simpler method where profits accumulated during the tax year are taxed. These effects will be discussed in more detail as proposals evolve during the consultation. In 2016, a consultation entitled "Simplifying tax for unincorporated corporations" was published, which included proposals to reform reference periods. A summary of the responses to this consultation was published in 2017. The proposals contained in this consultation differ significantly from those contained in the 2016 consultation. 3.22 As with any other year, the equivalency rule could also apply to the period between 31 March and 5 April. The rule could also apply to businesses that start trading between March 31 and April 5, allowing them to postpone the few trading days following their start to the next tax year, so they don`t have to return for a few days of profit or loss. You must determine your taxable income based on a taxation year. A "taxation year" is an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a short taxation year. The tax years you can use are: 3.27 The base of the taxation year removes the link between the date a business closes its accounts and the period in which profits or losses are measured in each tax year. Unlike the current rules on an annual basis, changing a company`s accounting date would have no impact on the timing of taxation.

As is usually the case for the tax year base, in order to allocate the profit to a taxation year in which a change in the accounting date occurs, a breakdown would be made to determine the amount of profit made in that taxation year. If an entity prepares its first financial statements at a time that occurs during the first, second or third year of AA after the start date of operations, the accounting period (from the start date) is accepted as the reference period for the first applicable YA. YAs before this YA therefore have no base periods. 2.9 However, in order to ensure that the base of the current year includes all the company`s profits and offers a certain degree of certainty over the base periods, the system has created a complex set of rules and a purely tax relief. This complexity leads to significant disadvantages for companies that have difficulty understanding and applying the rules of the reference period. The rules on overlap reduction are a particularly complex area, as most eligible companies do not benefit from the exemption when they should. These companies may not know they are eligible to apply for relief, may not know how to calculate relief, or may have lost track of their relief over time. Although the exchange period is only four months, this period extends over two taxation years, each of which must be taken into account. Example Susan has a base period in 2020/21 that ended on June 30, 2020. It decides that its new settlement date will be September 30, 2021. Your base period for 2021/22 is 15 months from July 1, 2020 to September 30, 2021.

If Susan has deferred overlap gains, she can use an overlap relief of three months of profits at that time to reduce the tax she will have to pay for the 2021/22 tax year. If he had overlapping earnings of £4,000 equivalent to four-month winnings, he would now use overlapping earnings of £3,000 and still carry forward £1,000. How the IRMD will determine the reference periods for these YAs will be discussed in more detail later in this article (see the "Changing the Accounting Date" section). One-time costs would include familiarization with the changes and could also include updating the software and guidance on removing the current rules from the reference period. This proposal was presented as an example of possible simplification in the scoping study "The Framework for Tax Administration: Supporting a 21st Century Tax System" published on 23 March 2021. This TIIN accompanies a consultation paper on the reform of the base period and a draft law defining the modalities for implementing a transition to the annual tax base. 3.33 The government is currently considering more detailed comments on areas where the reform of the reference period could interact with other tax areas. These could include: This proposal changes this to an "annual tax base" with effect from 2023 to 2024, so that a company`s profit or loss for a tax year is the gain or loss incurred during the taxation year itself, regardless of its accounting date. This repeals the rules on the reference period and prevents the creation of a new overlap facilitation. In the transition to the proposed annual tax base for the 2022-2023 fiscal year, the base periods for all corporations would be adjusted to the tax year and any outstanding overlap relief would be granted. 4.10 Companies that are struggling to fully meet their tax liability can also discuss with HMRC the possibility of agreeing on a payment period (TTP) to spread the payment of taxes over time through affordable monthly payments.

The TTP would serve as the default option if businesses could not pay the additional tax due in full at the time of the transition. TTP agreements are specific to a taxpayer`s situation, and there is no maximum repayment period. .