New basis period rules delayed by one year, Government announces

Major changes to the basis period rules will be delayed by one year, the Government has revealed.

Budget 2021 documents show that the controversial plans will go ahead, but will not come into effect until 2024.

Here’s what you need to know.

What are the basis period rules?

Under the current rules, Self Assessment tax returns are based on a trader’s set of accounts ending on 05 April – the end of the tax year.

But when accounts are drawn up to a date different to the end of the tax year, businesses pay tax for their first tax year on the period to the end of the tax year, and then in subsequent years based on their full accounting year – meaning profits are potentially “taxed twice”.

What’s changing?

The reforms mean businesses will only be taxed on profits arising in a tax year – rather than profits of accounts ending in the tax year – aligning the way self-employed profits are taxed with other forms of income, such as property and investment income.

Who will be affected by the new rules?

Businesses with an accounting year-end between 31 March and 05 April will not be affected. For all other businesses, the changes will likely bring forward the date on which taxable income will need to be reported and paid.

This represents around seven per cent of sole traders and 33 per cent of trading partnerships.

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Posted in Business, News.