In response to the House of Lords Economic Affairs Finance Bill Sub-Committee inquiry into the draft Finance Bill, the CIOT suggests that basis period reform ‘will exchange largely one-off complexities for ongoing ones and will not provide the desired simplification’ and that the requirement for large businesses to notify uncertain tax treatments will fail to achieve the stated policy aims ‘effectively or proportionately’.
CIOT comments on basis period reform include the following:
Existing rules are well understood by tax professionals. Tax software and HMRC systems can adequately deal with the existing rules and their inherent complications. Proposed reform would introduce ‘significant complexity’.
The proposals would introduce two new and recurring difficulties: (1) businesses with a period of account that does not match the tax year would need to prepare, report and apportion two sets of accounts in order to complete one year’s self-assessment tax return, and (2) many of those businesses would need to use estimated figures in order to meet the relevant deadlines and correct those estimates later on.
Excess profits in the year of transition, and the spreading over five years, could result in profits being taxed at higher rates than otherwise would apply if, for example, they were treated as additional profits for later years rather than being ring-fenced and taxed at the individual’s marginal rate (calculated ignoring the extra profits). The CIOT also highlights two problems with proposals on overlap profits.
While the delayed start date is welcome (2024/25, with the ‘transitional’ 2023/24 tax year), HMRC should publish a detailed timetable to help businesses and advisers prepare.
On notification of uncertain tax treatment:
The second trigger (HMRC interpretation) will mean businesses need to be able to rely on HMRC’s guidance (which has not been without difficulty in the past) and HMRC will need to make sure its guidance is up to date.
The third trigger (court/tribunal interpretation) is ‘incredibly imprecise, requiring a number of subjective judgements to determine whether a tax treatment is notifiable’.
The proposals could result in significant costs for businesses, including where businesses ‘over-notify’ in their efforts to avoid the risk of being non-compliant. This in turn could overwhelm HMRC with unnecessary notifications.
In response to the House of Lords Economic Affairs Finance Bill Sub-Committee inquiry into the draft Finance Bill, the CIOT suggests that basis period reform ‘will exchange largely one-off complexities for ongoing ones and will not provide the desired simplification’ and that the requirement for large businesses to notify uncertain tax treatments will fail to achieve the stated policy aims ‘effectively or proportionately’.
CIOT comments on basis period reform include the following:
Existing rules are well understood by tax professionals. Tax software and HMRC systems can adequately deal with the existing rules and their inherent complications. Proposed reform would introduce ‘significant complexity’.
The proposals would introduce two new and recurring difficulties: (1) businesses with a period of account that does not match the tax year would need to prepare, report and apportion two sets of accounts in order to complete one year’s self-assessment tax return, and (2) many of those businesses would need to use estimated figures in order to meet the relevant deadlines and correct those estimates later on.
Excess profits in the year of transition, and the spreading over five years, could result in profits being taxed at higher rates than otherwise would apply if, for example, they were treated as additional profits for later years rather than being ring-fenced and taxed at the individual’s marginal rate (calculated ignoring the extra profits). The CIOT also highlights two problems with proposals on overlap profits.
While the delayed start date is welcome (2024/25, with the ‘transitional’ 2023/24 tax year), HMRC should publish a detailed timetable to help businesses and advisers prepare.
On notification of uncertain tax treatment:
The second trigger (HMRC interpretation) will mean businesses need to be able to rely on HMRC’s guidance (which has not been without difficulty in the past) and HMRC will need to make sure its guidance is up to date.
The third trigger (court/tribunal interpretation) is ‘incredibly imprecise, requiring a number of subjective judgements to determine whether a tax treatment is notifiable’.
The proposals could result in significant costs for businesses, including where businesses ‘over-notify’ in their efforts to avoid the risk of being non-compliant. This in turn could overwhelm HMRC with unnecessary notifications.
