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Published on 2 September 2021

Basis period reform consultation

LITRG are pleased to respond to HMRC’s recent basis period reform consultation.

Illustration of a calendar, money bags and piles of coins

Our response confirms our support for the general principle of the new proposals outlined in the consultation as they mean complicated rules around basis periods become obsolete and tax for the self-employed (including partners) will be based on profits in the tax year, which will be easier for unrepresented taxpayers to understand.

However, we are extremely concerned that the time frame envisaged for implementing this change (for 2022/23 to be the transitional year and then the new basis of assessment to apply from 2023/24) is not realistic if a smooth transition is to be achieved for existing businesses which do not currently have a 31 March or 5 April accounting period.

Our submission explains that we believe serious consideration must be given to delaying the start date for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) to allow basis period reform to be fully and properly implemented. The potential introduction of two major changes to the tax system at the same time means the self-employed who do not currently have a 31 March or 5 April year end will need to be gearing up for the implementation of MTD for ITSA at the same time as transitioning to a tax year basis of assessment, while also maybe still addressing the financial impact of Coronavirus. In our view, the strain on both HMRC’s resources and unrepresented taxpayers running small businesses will likely be immense in these circumstances, and the broader ramifications (e.g. economic and societal, as well as trust in HMRC) could be far-reaching.

Our response also highlights some areas where the interaction between basis period reform and other areas of the tax and welfare systems (such as tax credits, universal credit and student maintenance) need to be fully considered so that unintended consequences do not materialise at a later date.

The consultation document can be found here.

Our full response can be found here.

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