In last week’s tax tips email we noted that you had just under eight weeks to review all the tax elections which need to be submitted by 5 April 2017. One of those elections is required to protect the taxpayer’s pensions Lifetime Allowance, which can be expensive if ignored. Now is also a good time to review your client’s accounting year end. Would they be better off changing their accounting date to 31 March to prepare for MTD reporting obligations? Finally, we reviewed the Scottish tax bands for 2017/18. Below we provide an extract of the second of the 3 tax tips we shared last week:
MTD: Accounting periods and commencement
Let’s take a closer look at exactly when MTD reporting requirements will start. We know the Government is insisting that unincorporated businesses, who are not exempt from MTD (turnover £10,000 or less – not confirmed), or permitted to defer for a year (turnover limit TBA) will commence MTD reporting from April 2018.
The draft legislation makes it clear that commencement of MTD reporting will be tied to the business accounting period (see new TMA 1970, Sch A1, para 14). This says that the regulations will not impose a requirement on a person or partnership…in respect of any period of account beginning before the tax year 2018/19.
This means a business with an accounting period that starts on 1 April will not be required to make MTD quarterly reports until the period that starts 1 April 2019. Its first quarterly report covers the three months to 30 June 2019 and will have to be submitted by 31 July 2019.
Conversely, an unincorporated business which draws up accounts to align with the tax year, will have to commence MTD quarterly reporting from 6 April 2018. Its first quarterly report will cover the three months to 5 July 2018 and will be due to be submitted by 5 August 2018. Perhaps your clients want to consider changing their accounting date to 31 March. The business will need to comply with the rules for changing accounting basis period (see BIM81045), but this could be an opportunity to use any overlap relief which arose on commencement of the business. Unincorporated property lettings businesses are required to draw up accounts to the tax year end.