The leading professional bodies have written to the Financial Secretary of the Treasury asking the government to reconsider the timing of proposals to change the tax basis periods and introduce Making Tax Digital (MTD) for Income Tax in April 2023.

In its new Basis Periods consultation HMRC propose a simplification of the Income Tax rules for the self-employed by allocating trading profit to tax years regardless of the business’ accounting period end date. Under current planning, this will take effect from 2023-24, with a transition period in 2022-23. At the same time, Making Tax Digital for Income tax will compulsorily apply for accounting periods starting on or after 6 April 2023.

There is concern amongst tax professionals that following Brexit, the COVID-19 pandemic and key Changes to the tax penalty regime  which take effect from April 2022 for VAT and 2023 for Income tax, the simultaneous introduction of two more significant changes to the tax system will put too much pressure on businesses, agents, and HMRC and threaten the integrity of the tax system.

Whilst supporting the proposed changes, the professional bodies feel that the basis period change could result in some taxpayers having to pay tax earlier, with both this and MTD for Income Tax causing taxpayers to require a much higher level of education and support from agents, HMRC and tax charities. They are therefore asking HMRC to think again about the timetable for both of these proposed changes.

The participating professional bodies (Association of Taxation Technicians, the Chartered Institute of Taxation, Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland) have offered to meet with HMRC to discuss the matter further.

Useful guides on this topic

MTD: Toolkit for accountants
What is the current timetable for Making Tax Digital (MTD)? How will it work? Which clients will be excluded? What planning needs to be undertaken?  

Accounting periods and tax basis periods
Which date do I choose? Does it matter? Can I change my accounting date?

Penalties: points based late submission regime
A points-based late submission penalty regime is replacing existing late submission penalties for VAT and Income Tax Self Assessment (ITSA) under Making Tax Digital.

Penalties: Late Payment (Subscriber guide)
What penalties are charged when tax is paid late? 

Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?

External link

Letter of 16 August 2021 to Jesse Norman MP



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