There are a few different new years. There is the one that starts on 1 January. There is the Chinese New Year. But what I am talking about is the one that starts on 1 February, the day after the self-assessment filing deadline. And for those accountants that work in tax, the passing of the old self-assessment deadline on 31 January is a time to relax, unwind and reflect on the tax return campaign that has just finished.
As I write this during my normal commute there are still a few days to go and a few tax returns still to be filed, but I know that you will be reading this after the event. I expect that we will have all of our tax returns filed, but you never know what might happen. There may be a 4 day power cut affecting the whole of the North of Scotland!
Talking about the other new year, the one at Hogmanay, I have never been a real fan of the television coverage. But for a number of years I watched Jules Holland’s Hogmanay show, but I know that is not everyone’s cup of tea. They had all the usual references to the old and new years, and also the countdown to midnight. Then I discovered that it was actually filmed in October, and I don’t think I have watched it very much ever since. It just did not have the same appeal. It was a fake. I suppose I also felt that I had been taken in and that they were just acting. How genuine are you in your business dealings?
Funnily enough, I don’t like Februarys. I don’t mind January. It is hard work and there is pressure to complete the filing of all the returns on my list, but we all know what we need to do, and we focus on getting this done, single mindedly reaching our goal. That, of course, means leaving some things until February (or later) and so, come 1 February there will be some of you phoning me to remind me of what I said I would do in February. It’s not unusual for the phone to ring at 9am on Tuesday 1 February. So February is the month for getting done all of these things I did not have time for in January.
With the start of the new self-assessment year, what do we have to look forward to? Well, there will be a budget, probably in March, and we already know there will not be any significant tax cuts. But taxes continue to rise even if the rates don’t change. That is because the bands are frozen so as you earn more year by year, you are more likely to go into higher rates of tax. The personal allowance is also frozen.
MTD for self-assessment has been put back 2 years and the criteria for who will be affected and by when have changed but we can forget about that for a little while at least.
The change in the assessment basis period for sole traders and partnerships is going ahead. The transitional year is 2023/24 which starts in just 2 months. This will really only impact you if your accounting period is not 31 March or 5 April. Everyone else will have to apportion their profits out of 2 accounting periods in order to determine the profits to be taxed in each tax year. The basis period will be the tax year itself.
What about that transitional year? Well you see, if you have a non-tax year accounting period, then for 2022/23 the profits assessed will be those for the accounting period ended in that year. That could be 30 April, 31 May and so on. For 2024/25, your profits will be apportioned to the tax year basis period. But what about 2023/24. In that tax year the profits to be assessed and on which your tax will be calculated are the profits for the period from the end of the accounting period used for your 2022/23 tax and 5 April 2024. That could be up to 23 months of profits if you have a 30 April year end. There are spreading provisions so that you can pay the additional tax over a number of years. Nevertheless, it will be yet another headwind as everyone tries to get back on their feet after Covid etc.
If you operate through a company then you have the hike in Corporation Tax rates to look forward to, with the rate for profits above £50,000 rising to 26.5% for most of you. If you have 2 or more related companies, the £50,000 band where you only pay 19% is divided by the number of related companies, so if you have 5 companies, you pay 26.5% on profits above £10,000 in every company.
So we are all going to be going through it to a greater or lesser extent this year. But on the other side, the Inverness and Cromarty Freeport is generating some excitement with a few companies asking about the advantages. So, this may be something we can all get excited about. However, it is a shame there could not have been another Freeport in Orkney, but maybe that will come yet.
It’s going to be an interesting year but largely for all the wrong reasons. Never mind, just keep calm and carry on. And along the way, there may be opportunities to prosper.
Alan E Long
The Long Partnership