Unincorporated businesses which draw up accounts to a date other than on or between 31 March or 5 April may need to prepare for larger than normal tax bills for 2022-23.

This is because the Government is proposing a change to the basis on which profits are taxed, from the 'current year basis' to the 'tax year basis' in 2022-23, ready for MTD for income tax to commence on 6 April 2023. This proposed change will not affect companies.

For example, the Hill Farm partnership's accounting year ends on 30 September. In the tax year 2021-22 the Hill Farm partners are taxed on the profits for the accounting year to 30 September 2021.

For the tax year 2022-23 the partners would have to report to HMRC the profits arising in the 18-month period from 1 October 2021 to 5 April 2023, the usual twelve months to 30 September and the extra period to the end of the tax year. From this total, overlap profits can be deducted to calculate a liability for the year. Where this results in extra profits being taxed compared to what would have been taxed in a normal year, those excess profits can be spread over a maximum of five years.

HMRC is not asking businesses to change their accounting year end. But where the accounting period does not match the tax year, an apportionment of profits from two sets of accounts will be needed to calculate the figures required for each tax year. It may therefore be easier to draw up accounts to the tax year end (or to 31 March).

These figures and associated potential year end change will need to be considered in detail and we will be happy to talk you through which options are likely to be best for you.