Countdown to Basis Period Reform – is your timetable realistic?

As we enter Autumn 2023, those with responsibility for partnership and partner tax compliance will be gearing up for the annual tax filing season. Before tax teams get immersed with this year’s filings, we suggest partnerships take time to ensure they are in the best possible shape to deal with the following year’s filing obligations.

For those affected businesses without 31 March accounting dates, or those firms changing accounting dates to 31 March, following “business as usual” timetables could lead to a significant increase in compliance obligations in 2024. Therefore, having a plan in place agreed with relevant stakeholders to respond to this will be key to a smooth transition.

In this article we focus on three questions raised by Basis Period Reform where we feel it will be useful for partnerships to develop plans to manage these issues:

1. Will your partnership be able to provide final figures to partners?

A significant number of partnerships will need to prepare provisional figures for partners to arrive at their profits on the tax year basis. This could even include firms who are moving their accounting date to 31 March and will have the maximum time to prepare taxable figures.

For example, Firm A has to date prepared accounts to 30 June. To simplify its partners’ tax affairs, Firm A is moving its accounting date to 31 March 2024. A continuing partner with Firm A will have to report profits in their 2023/24 personal tax return from Firm A for the period from 1 July 2022 – 30 June 2023 + 1 July 2023 – 31 March 2024 (less overlap relief) to arrive at their profits for the transitional year.

Firm A has international operations. Information regarding foreign tax payments on 31 March 2024 profits will be available in Spring 2025. Furthermore, the firm’s finance team and auditors expect to complete Firm A’s accounts in December 2024. There will be insufficient time for Firm A’s tax team to provide partners with final tax-adjusted profit figures to enable them to file their 2023/24 tax returns by 31 January 2025. Firm A’s tax team plans to prepare provisional 31 March 2024 figures to partners in September 2024 which will be revised the following year following completion of the firm’s audit.

Our recommendation is that tax teams determine at an early stage if it will be necessary to provide partners with estimated figures. If the firm plans to provide partners with final figures, we recommend the firm draws up a detailed process timetable now and, where relevant, seeks agreement from the firm’s auditors and finance teams at an early stage to ensure that final information will be available when needed to prepare the tax calculations.

2. When will your firm’s partners amend their provisional figures?

As noted, we expect a significant number of partnerships will require their partners to file provisional figures. When partnerships are preparing provisional figures they might be minded to adopt cautious approaches to minimise interest charges - particularly in view of increasing rates of interest applied by HMRC (currently base rate plus 2.5%).

Due to the increasing cost of financing facilities, firms may however want to revise figures as soon as they can, and may not therefore be inclined to adopt HMRC’s administrative easement and wait until filing the following year’s returns to revise provisional figures. It may, therefore, be good practice to build in a touch point in the year once accounts and foreign tax numbers are settled, and schedule for partners/ their agents to process amendments at that point. This could have the benefit of spreading more of the compliance work during the year, to make it more manageable.

3. How will international taxes and double tax relief be affected?

While the basis period reform legislation is no longer new, preparing detailed individual calculations may bring up technical issues such as the interaction with international taxes and double tax relief.

For those firms with international operations, we recommend the business timetables a review of its approach to double tax relief, with basis period reform in mind. Some partnerships may have adopted long-standing approaches to claiming double tax relief, and it may also be timely to review and document those processes.

BDO has discussed the impact of double tax relief on spreading, overlap profits and DTR clawbacks directly with HMRC, and would be delighted to work with partnerships on these areas.