With the announced delay in MTD ISTA before Christmas, I suspect everyone breathed a sigh of relief, assuming that the basis period reform would also be delayed. Especially given HMRC’s narrative that basis period reform was necessary for the successful implementation of MTD ITSA.
However, the announced delay did not include Basis Period Reform when looking at the finer details in January. It will go ahead as planned with the transitional period in the 2023/24 tax year.
This results in potentially 23 months of income (based on a 30 April year-end) being assessed in the 2023/24 tax year, with 31 January 2025 being the first tax payment affected. Please see below for more information.
Making Tax Digital (MTD) for Income Tax will come into effect from 6 April 2026, having recently been delayed for a fifth time, for those with Self-Employed, partnership and Property income that exceeds £50,000 (in total). From that date, businesses will have to comply with the following:
As part of implementing MTD ITSA, HMRC has also undertaken Basis-period reform. If your accounting year-end is not 31 March or 5 April this will result in additional complications and being assessed on 23 months of income in the 2023/24 tax year, based on a 30 April year-end.
You are currently taxed on the accounting period ending within the tax year. Many people opt for an accounting period early in the tax year, typically 30 April, as it provides the following benefit:
There are varying factors that will determine the scale of the effect MTD ITSA will have on you. Such as:
o MTD VAT – how you currently comply with MTD VAT
o Accounting Year-End – Basis Period reform could significantly impact your affairs depending on your year-end.
o VAT Quarter Ends
Please note that these changes will not affect the due date of any tax liabilities. You will not have to make any quarterly payments with the submissions; payment dates will remain on 31 January and 31 July.
o Record Keeping - Not much will change if you have been using MTD software for VAT. You will already be keeping digital records for VAT purposes with software that has an API link to HMRC. Many major software providers will have an API link with HMRC for MTD ITSA when it comes into effect. Below is a link to software providers currently working with HMRC:
https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax
o Basis period reform will cause numerous complications for anybody that does not have a 31 March or 5 April accounting year-end. Many of the benefits of having a varying year-end will be negated, so it may be worthwhile considering a change of accounting year-end to avoid these complications.
o Remaining on a none 31 March or 5 April year-end will result in proportions of two different sets of accounts being used to calculate assessable profit.
o Sync quarter ends – Eight quarterly submissions will be made between VAT and Self-assessment. Syncing your VAT quarter with the Self-assessment quarters (above) may be worthwhile to simplify your affairs and negate the need to deal with eight varying deadlines throughout the year.
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PKW Accounting Ltd
Company Reg No. 08648961
Registered in the U.K
St. Helens | Merseyside