Louise Cupples
Tax Partner
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Neil Williams
Partner
In gearing up to file tax returns for the transitional period of basis period reform, partnerships will want to ensure they are as prepared as possible. Firms have had several years to get ready for these changes and many have used this time to review their administrative processes and assess the financial impact. However, as we approach the tax return filing deadlines and the first additional tax payment due on 31 January, unforeseen issues may arise. Planning ahead can help minimise any surprises.
In this article, we consider the main issues partnerships are likely to encounter during the 2023/24 tax filing season.
Almost all partnerships that did not previously have a 31 March accounting date will face accelerated tax filing processes for the 2023/24 tax returns. For example, partnerships with a 30 April accounting date will move from having 21 months to finalise their accounts and prepare tax computations to just 9 months this year if they wish to provide partners with final details of their profits arising in the tax year. Despite best efforts, some firms may not be able to finalise all their numbers and their partners may need to file returns on a provisional basis. This could happen due to late audit adjustments or internal resource issues within the tax team.
We recommend partnerships set a reasonable "hard stop" deadline for finalising provisional figures to allow enough time for the preparation and review of partner tax returns. Where provisional figures are included, partnerships should ensure they understand the necessary disclosures for both partnership and individual partner returns. They should also have a timetable in place to revise provisional figures, especially if final figures deviate significantly. This will help minimise interest on inadequate estimates and enable timely refunds to be received from HMRC where assumptions have been too cautious.
Most partners can expect their partnership information for tax returns to be ready later this year. Basis period reform brings many changes to the partnership information on self-assessment tax returns. Time will need to be incorporated into the filing process to ensure partners understand the appropriate elections, such as spreading transitional profits. If a partnership does not expect to have figures ready until close to the filing date, it may be beneficial for finance teams to use the coming months to remind partners of the anticipated changes and how these might impact their personal position in order to accelerate queries.
Partnerships preparing tax returns without an agent must ensure they have all the information needed for accurate filings and have tested software solutions. Running dummy tax returns through the system well in advance of the filing deadline could be a sensible step in assessing readiness. HMRC has released online interactive guidance to support the completion of returns, although their online transition profit calculator is not available to partners in a partnership. HMRC also provides an online service to request overlap relief figures, but only if this information has been provided in a previous tax return. Firms may therefore need to work with their advisers to confirm and review these figures.
The legislation has been available for some time, but basis period reform affects each individual partner specifically. Until tax returns are prepared for individual circumstances, all technical issues may not have been considered. Firms may wish to enhance their modelling work for basis period reform to include individual circumstances where only high-level work has been done so far. Application of technical issues could affect the partner or firm more widely if it results in higher than anticipated tax payments. For example, for partners with negative transition profit, has the impact of lost lower rate bands or the loss of personal deductions due to losses being carried back been considered and factored into tax cashflow forecasts?
The spreading rules for basis period reform apply only to profits of the trade. When finalising tax computations, firms should ensure all income sources (e.g., untaxed interest, rental business, foreign dividends) are properly considered and treated appropriately. The impact of not spreading such income sources, where they are material to the trade, should also be factored into tax payment projections.
Our previous article on basis period reform and going concern considerations covered the impact of accelerated tax payments on a partnership’s working capital position. Sustained focus on working capital management and ensuring adequate financing facilities with suitable contingency headroom are available will continue to be of critical importance as we approach the tax payment date for the transitional year.
By having a robust plan in place to address these administrative and technical implications, partnerships can navigate the transitional period of basis period reform more smoothly. To discuss how we can help your partnership, please contact your usual BDO contact