The dust is now settling after the rush to get tax returns submitted by 31 January. One week before the deadline we heard that 4 million 2021 tax returns were still outstanding. As of the 31 January deadline, the total outstanding was still 2 million. We had submitted tax returns for virtually all of our clients by that deadline, so we are not contributing to the 2 million.
Why was this important when the deadline had been moved back? The deadline was not moved. What they said was that there would be no penalties for returns submitted in February. Your return will still be flagged as late. One of the consequences of this is that it gives HMRC longer to enquire into your return. The window for HMRC opening an enquiry runs to 30 April 2023, instead of the normal 31 January 2023. Also, HMRC may pay more attention to returns filed late as it may be a sign of disorganization which may extend to record keeping and so they may see you as easy pickings.
All of our clients are covered by fee protection but still, an HMRC enquiry is not pleasant and something to be avoided if possible.
One thing that we did do by the end of January was to update any 2020 tax returns where revision was required. Normally tax returns must be submitted by the following January but then you get a further year to make any corrections or adjustments. In the case of some of our clients, and you know who you are, we had not received the records and so we submitted estimated returns last year. My final submission on 31 January this year was for a sole trader who put his books into us for a 2020 tax return in the last few days of January this year. We got the accounts done, prepared tax computations, and got the return submitted around 8pm on 31 January. Don’t let this be you!
The filing system for income tax returns has now been in operation for around 25 years. HMRC has tinkered with the rules but they have fundamentally remained unchanged. You will have a couple of years yet then they’ll change again. That’ll be something to look forward to if you are a sole trader or proprietor of rental properties.
So what’s coming down the tracks. From April 2024 we will be into MTD for income tax. Quarterly submissions made from records that you keep in digital format. It will be a bit like the current VAT returns but for income tax. The exact nature and timing of the submissions are still uncertain as HMRC are still to implement some of the changes on their wish list.
If they get what they want the quarters will be set to calendar quarters, whatever your year end, and you will have no discretion. These will begin from April 2024 so the first quarterly submission will be for the 3 months to 30 June 24 and you have a month to make your submission. Following your 4 quarterly submissions will be an annual submission.
The tax year 2024/25 will be an interesting one. The old rules will still be playing out for the 2023/24 year with accounts and tax returns being done in the old way with tax returns to be submitted by 31 January 2025. While we are working through these accounts and returns, there will be quarterly submissions to be made for 2024/25 and beyond.
The taxable period will be the same for everyone, and you will report your profits for the year to 31 March 2025 (or 5 April) irrespective of what date you use to draw up your accounts. So, if you have a different accounting period, you will need to apportion the profits from multiple accounts to derive the right profits for the tax year.
At the moment, the quarterly submission dates are staggered, and the profits used are still those in your annual accounts. But this will change if HMRC get their way.
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Alan E Long
The Long Partnership