Basis Period Reform is on its way. Here’s how it could affect you!

In April 2024, HMRC is changing its approach to business taxation through the basis period reform. But what exactly is a basis period, and how is it being reformed? This Blog will work to answer these questions by investigating basis period reform and the common questions surrounding it.

Generally, unincorporated businesses set up their annual accounts to coincide with the same date each year, known as their accounting date. With the current system, business owners can calculate their total profit or loss for the year by using this date and allocating the 12 months that follow it as their tax year or basis period. Essentially, basis period reform aims to standardise the dates that unincorporated businesses base their tax year around. In turn, a business whose accounting date falls outside the tax year (March 31st and April 5th) needs to adjust their accounting according to basis period reform.

Why is Basis Period Reform Happening?

Basis period reform aims to level the playing field in regard to small businesses, with the government stating that it will “create a simpler fairer and more transparent set of rules for the allocation of trading income.” Within current taxation laws, two businesses making the same profit but with different accounting dates can pay completely different taxes. This difference results in some businesses benefiting, and other not, an imbalance that the HMRC wishes to correct.

• HMRC, “Using the tax year basis will remove this complexity and lead to a clearer and more transparent relationship between the profits arising in a tax year and the tax liability related to them.”

Who Will be Affected?

Only certain businesses will be affected by the reforms, primarily those unincorporated. It will also only affect businesses which compile their annual accounts to a date different to the 31st of March or the 5th of April. Those affected,

•          7% of sole traders.
•          33% of partnerships
•          Certain Trading Trusts
•          Certain Estates
•          Certain Non-resident companies

How Will Basis Period Reform Affect businesses?

Currently 2023/2024 is a transition year regarding base period reform. Businesses whose accounting year doesn’t coincide with the standardised taxation year will simply report on an extended basis period until they have caught up. Whilst calculating a tax return around this, you must utilise the accounting year in addition to this transitional period, effectively creating an extended report. In theory, this should align the taxation years for all unincorporated businesses for the beginning of April 2025.

This all sounds straightforward, but in practice, these reforms will initially raise issues such,

•          Additional administrative work.
•          Uncertainty with business owners.
•          Time constraints regarding finalising figures.
•          Potentially weakening partnerships/partnership income

Can I Avoid Paying Tax Twice?

The additional transitional profits arising from an extended basis period in 2024 should be offset by overlap relief originally given in Year 2 of the business. This was a mechanism to avoid paying tax twice on overlapping earnings in the early years of trading if your year-end was other than 5^th April.

You can get that figure using this link:

https://www.gov.uk/guidance/get-your-overlap-relief-figure

Summary

Whilst at first these changes may give cause for confusion; they should ultimately act to simplify. The standardisation brought through basis period reform should put all affected businesses on the same terms regarding taxation, streamlining the process for accountants and HMRC.

Curious if these changes apply to you? If so, feel free to get in touch with us here at Baxterworld via the contact details on our website.

#accounting #accountancy #finances #financetips #business #smallbusinessowneruk #tax #taxreturn #basisperiod

For a 5-day week worker, the entitlement is 5.6 paid weeks or 28 days per annum which can include public holidays. In the case of 6 days per week workers, it is capped at the 28 days. It is calculated from the first day of employment. For those working less than a 5-day week, it would be pro-rata.

Coming from old EU law which still applies in the UK, a worker must take at least 4 weeks holiday per leave year, If less is taken, it cannot be carried over. You are not permitted to “buy” unused statutory leave.

The amount payable per week is obvious where pay is fixed. If it is not, then a 12-week average is used.

When planning holidays, consider employees on irregular hours. For those with variable work patterns, holiday pay must reflect the average weekly pay over the previous 52 weeks, including any overtime or commissions. This ensures fairness and compliance with regulations.

Additionally, clear policies should be in place to manage holiday requests, preventing understaffing and ensuring smooth operations. Encourage staff to plan holidays early, balancing business needs with employee well-being.

Moreover, keeping accurate records of leave taken and remaining entitlements helps avoid disputes and ensures legal compliance. Remember, a transparent and fair holiday policy fosters a positive work environment, enhancing employee satisfaction and retention.

Here is a link if you need more information.

https://www.gov.uk/calculate-your-holiday-entitlement

If you’re interested in this week’s topic but not sure what to do next, contact us via the link below. We’re always trying to help businesses to succeed, so, by working with them, we can help them to reach their goals. Just give us a call or an email via the information on our contact page.

Find a chartered accountant | Contact Us

#holiday #holidaypay #takecontrol #holidaytravel #wagesandsalaries #employeebenefits #employersolutions #employersupport

We have probably forgotten how exceptional the low interest rate period from 2009 to 2021 was. The Bank of England chart below brings it home.

Before the 2008 financial crisis, interest rates were around 5% which was needed to control inflation at the time. You all will all remember the crazy house price surge in the previous five years. The rate was then cut to nearly zero to stimulate the damaged economy.

Now the Bank of England, along with other central banks, is rapidly pushing the rates up again, currently 3% and (my guess) probably peaking at 5%, the same as in 2006-2008. The conundrum is, if they are trying to control inflation, surely higher mortgage payments will add fuel to the fire?

The bank is acutely aware of this and point out that only one in three households in the UK have mortgages whereas everyone is affected by inflation. A bit of wealth re-distribution going on there!

Cont…

Moreover, the Bank of England’s strategy involves a delicate balance. While higher interest rates can curb inflation by reducing consumer spending and slowing down borrowing, they also risk increasing the financial strain on mortgage holders. This could lead to decreased disposable income, affecting overall economic growth.

The broader impact on savings and investments should not be overlooked. Higher interest rates can benefit savers through better returns on deposits, potentially leading to more savings and less spending.

For businesses, rising interest rates can mean higher borrowing costs, affecting expansion plans and operational costs. Companies may need to reassess their financial strategies to adapt to this changing economic landscape.

In essence, the Bank of England’s approach aims to temper inflation while considering the varied impacts on different economic sectors. As we navigate this period, staying informed and adaptable is crucial for both individuals and businesses.

For more information email Ray Baxter at [email protected]

…or more than one Pub or coffee shop, then managing the business takes a new dimension and the size of your turnover or bank balance no longer cuts it. A part time bookkeeper will not help. Just looking after your VAT returns and having semi complete records to pass to your year end accountant will leave your business vulnerable.

The good news is, with more than one venue, you get an excellent opportunity to benchmark, particularly if they both operate on the same model. In Baxterworld’s 20 years’ experience providing hospitality accounting, using this technique has improved our client’s profits by over £1m during this period. Obviously, you need properly produced monthly accounts. As the saying goes, you can’t manage what you don’t measure.

As an example, let’s look at the KPI of Gross Profit/sales %age for beverages and your 3 restaurants or pubs are showing 67%, 71% and 72% respectively. On first sight, outlet 1 seems to have a problem, particularly if your stock system or stocktake provider suggests it should be 73% for that product mix.

As the manager or owner, you are now guided to review the following:

• • Possible stocktake error

• • Wastage

• • Excessive loss cleaning pipes

• • Inefficient product mix

• • Supplier fraud

• • Purchasing cost too high

• • Customer pricing too low

• • Employee fraud

• • Theft

You can see how, having your monthly P&L accounts for each site sitting side be side and reviewing the results monthly or quarterly, will make more money. Hopefully This guide has given you some insight into multi-site management, when you own more that one restaurant.

Contact us today via out contact page for more information. Feel free to call or email us here at Baxterworld. Our office us open Monday to Friday 9-5.

For more information email Ray Baxter at [email protected]