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Budget round-up: Personal and Partnership Taxation

Basis Period Reform

There has long been talk in professional circles about basis periods, in readiness for Making Tax digital for Income tax which is set to be implemented from April 2024 (delayed from its initial implementation date of April 2023). This will affect self-employed traders which draw up annual accounts to a date different to 31 March or 5 April each year.

Under current rules, a business’s profit or loss for a tax year is usually the profit or loss for the year up to the accounting date in the tax year.

The reform changes this to a ‘tax year basis’ with effect from the tax year 2024 to 2025, so that a business’s profit or loss for a tax year is the profit or loss arising in the tax year itself, regardless of its accounting date.

On transition to the tax year basis in the tax year 2023 to 24, all businesses’ basis periods will be aligned to the tax year and any extra profits (subject to overlap relief) will be brought into charge at that time.

For businesses with higher profits in 2023 to 2024 due to the change in basis, there will be an allowance to automatically spread the transitional period additional profits over a period of five years, although taxpayers can elect out of this should they wish.

There are some practical considerations here, especially around any filing deadlines for LLP’s and those businesses that continue to draw up their accounts to a different year end. It is likely that many businesses will change their year end to match the tax year end, but there can be a number of practical reasons as to why a business chooses a different year end.

Those affected should seek to ensure they identify the Overlap Profits available to lessen the burden, which in our experience are not always well documented, although historically HMRC have been a good source of this information if all else fails.

30 Day reporting for Capital Gains Tax (CGT) extended to 60 days

UK residents that dispose of an interest in UK residential property that results in CGT to pay were currently required to deliver a CGT return to HMRC and make a payment on account of CGT within 30 days of the completion of the disposal.

Following on from a recommendation by the Office of Tax Simplification and other accounting and tax bodies, this has been extended to 60 days for disposals that complete on or after 27 October 2021.

This is a sensible measure given the short current timeframe and is a sensible revision to the rules.

Increase of the rates of income tax applicable to dividend income

As announced previously, the government is increasing the rates of dividend taxation at a rate equivalent to the new Social Care Levy being introduced.

Currently the ordinary rate of dividend taxation, upper rate and additional rate are 7.5%, 32.5% and 38.1% respectively. This measure increases each rate by 1.25% to 8.75% 33.75% and 39.35% from April 2022.

We therefore expect small businesses to consider the timing and amount of dividends declared over the coming months to April 2022 which may be issued while the rates are more favourable.

Increasing Normal Minimum Pension Age

The government will legislate in Finance Bill 2021-22 to increase the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, the normal minimum pension age, from 55 to 57. This increase will have effect from 6 April 2028.

Taxation of Public Service Pension Reform Remedy

It has been announced that legislation will be introduced to ensure that persons in public service pension schemes (such as the NHS and civil service) who were members of the scheme on or before 31 March 2012 and at any time after 1 April 2015 and who benefit under the McCloud remedy for age discrimination will not suffer any adverse tax charges as a result of taking advantage of the remedy.

If you have any questions for our Tax experts as a result of this Budget, please contact us on 01242 776000 or tax@randall-payne.co.uk.

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