Call to scrap proposed basis period reform

Going ahead with proposals to change basis periods ahead of the expansion of Making Tax Digital would be a "backwards step" for affected businesses, warns the Institute of Chartered Accountants in England and Wales (ICAEW).

Responding to HMRC's consultation proposals to align basis periods with the tax year, the ICAEW said such changes would not provide any genuine simplification to the tax system and create as many problems as it would solve.

Instead, it argues the proposed reforms would likely "increase costs, complexity and uncertainty for those businesses affected".

It also highlights that the 7% of sole traders and 33% of partnerships who don't align their basis period with the tax year do so because they often have a presence in other countries where 31 December is typically the tax year-end.

Seasonal businesses, agricultural firms and GP practices would face considerable difficulties with the change, the ICAEW added.

It said tax basis periods spanning two accounting periods would require those businesses to estimate profits for a portion of the tax year in sectors where accurately forecasting profits is already difficult.

HMRC says allocating trading profits to tax years makes the rules "fairer for small businesses, more logical and easier to understand".

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