Basis Period Reform – the final pieces of the puzzle?

The Basis Period Reforms (BPRs), moving from the Current Year Basis of Assessment to a Tax Year Basis, are effective from the 2024/25 tax year with 2023/24 being a transitional year. Businesses that draw up accounts to a date other than 5 April or 31 March will need to pro-rate their results to the tax year. This means some businesses will need to use provisional figures when filing their tax returns. Earlier this year, HMRC invited interested parties to provide feedback on various options for dealing with provisional figures. HMRC’s response confirms provisional figures can be amended within the normal time limits instead of ’without delay’. This will affect individuals, trusts, partnerships and others subject to Income Tax on trading income.

For further background on the BPRs, please see our previous articles for the general rules or specific issues for professional partnerships.

Amending provisional figures

HMRC expect many businesses to change their accounting date to 31 March to simplify the assessment of profits and avoid the need for provisional figures. However, there are commercial factors to consider when contemplating such a change, particularly for international businesses and those in corporate groups where a change from a 31 December year-end may not be feasible. For those considering a move to a 31 March year-end, they should note that such a change before the 2023/24 tax year removes the spreading charge option (see our articles linked above).

Those who prepare accounts to a date later in the tax year will be particularly impacted by the new rules. For example, businesses with a 31 December year end currently have 13 months to finalise their figures. Going forwards, they will have one month – for example in 2024/25, where the filing deadline is 31 January 2026, they will be assessed as follows:

• Nine months from the year ended 31 December 2024; and
• Three months from the year ended 31 December 2025

The results for the latter period may not even be known, by the 31 January 2026 filing deadline. Large partnerships, even those with an accounting date earlier in the year, may find the shorter timeframes a challenge, especially if a statutory audit is required.

Currently, if provisional figures are used in a tax return, they must be replaced with final figures ‘without delay’. In relation to the BPRs, HMRC considered several options including:

1. Removing the need to amend the figures ’without delay’ and allowing the amendment to be filed when the following year’s tax return is filed (i.e. the normal time limit for filing amendments – 12 months from 31 January following the year of assessment);
2. Extending the filing deadline for certain taxpayers;
3. Including the difference between the provisional and final figures as a ‘true-up’ in the following year’s return; and
4. Specific easements for large partnerships.

Having considered the feedback from stakeholders, as well as the legislative complexity and delivery implications of the options available, HMRC have decided to go with option one. This is certainly the easiest option for them as they will only have to update their guidance on the use of provisional figures from the 2023/24 tax year, but it will create additional administrative burdens and professional costs, particularly for large partnerships where an amendment may be required for every partner as well as the partnership. Also, an interest charge could arise if the estimated figures are lower than the final figures.

Update on overlap figures

Whilst overlap relief should be recorded on the taxpayer’s tax return and carried forward each year, HMRC recognise that this figure is often missing or incorrect. They are exploring methods of providing overlap relief but, in the meantime, businesses that have changed their accounting date in the 2021/22 tax year should request such information from HMRC. Those looking to change their accounting date in 2023/24 or use overlap relief in the 2023/24 transitional year should wait as HMRC hope to provide certainty on this point in coming months.

Actions

• Consider whether a change of accounting date is appropriate;
• Can you plan for a shorter tax return preparation timetable?;
• If overlap figures are made available, check they tie in with your records; and
• If you have not already done so, consider the cash-flow implications of the reforms.

KPMG in the UK can support you in navigating the impacts of these reforms. Please contact us if you would like to discuss further.

For further information please contact:

• Roisín Byrne

• Richard Green