Basis Period Reform is on its way. Here’s how it could affect you!

In April 2024, HMRC is changing its approach to business taxation through the basis period reform. But what exactly is a basis period, and how is it being reformed? This Blog will work to answer these questions by investigating basis period reform and the common questions surrounding it.

Generally, unincorporated businesses set up their annual accounts to coincide with the same date each year, known as their accounting date. With the current system, business owners can calculate their total profit or loss for the year by using this date and allocating the 12 months that follow it as their tax year or basis period. Essentially, basis period reform aims to standardise the dates that unincorporated businesses base their tax year around. In turn, a business whose accounting date falls outside the tax year (March 31st and April 5th) needs to adjust their accounting according to basis period reform.

Why is Basis Period Reform Happening?

Basis period reform aims to level the playing field in regard to small businesses, with the government stating that it will “create a simpler fairer and more transparent set of rules for the allocation of trading income.” Within current taxation laws, two businesses making the same profit but with different accounting dates can pay completely different taxes. This difference results in some businesses benefiting, and other not, an imbalance that the HMRC wishes to correct.

• HMRC, “Using the tax year basis will remove this complexity and lead to a clearer and more transparent relationship between the profits arising in a tax year and the tax liability related to them.”

Who Will be Affected?

Only certain businesses will be affected by the reforms, primarily those unincorporated. It will also only affect businesses which compile their annual accounts to a date different to the 31st of March or the 5th of April. Those affected,

•          7% of sole traders.
•          33% of partnerships
•          Certain Trading Trusts
•          Certain Estates
•          Certain Non-resident companies

How Will Basis Period Reform Affect businesses?

Currently 2023/2024 is a transition year regarding base period reform. Businesses whose accounting year doesn’t coincide with the standardised taxation year will simply report on an extended basis period until they have caught up. Whilst calculating a tax return around this, you must utilise the accounting year in addition to this transitional period, effectively creating an extended report. In theory, this should align the taxation years for all unincorporated businesses for the beginning of April 2025.

This all sounds straightforward, but in practice, these reforms will initially raise issues such,

•          Additional administrative work.
•          Uncertainty with business owners.
•          Time constraints regarding finalising figures.
•          Potentially weakening partnerships/partnership income

Can I Avoid Paying Tax Twice?

The additional transitional profits arising from an extended basis period in 2024 should be offset by overlap relief originally given in Year 2 of the business. This was a mechanism to avoid paying tax twice on overlapping earnings in the early years of trading if your year-end was other than 5^th April.

You can get that figure using this link:

https://www.gov.uk/guidance/get-your-overlap-relief-figure

Summary

Whilst at first these changes may give cause for confusion; they should ultimately act to simplify. The standardisation brought through basis period reform should put all affected businesses on the same terms regarding taxation, streamlining the process for accountants and HMRC.

Curious if these changes apply to you? If so, feel free to get in touch with us here at Baxterworld via the contact details on our website.

#accounting #accountancy #finances #financetips #business #smallbusinessowneruk #tax #taxreturn #basisperiod

For a 5-day week worker, the entitlement is 5.6 paid weeks or 28 days per annum which can include public holidays. In the case of 6 days per week workers, it is capped at the 28 days. It is calculated from the first day of employment. For those working less than a 5-day week, it would be pro-rata.

Coming from old EU law which still applies in the UK, a worker must take at least 4 weeks holiday per leave year, If less is taken, it cannot be carried over. You are not permitted to “buy” unused statutory leave.

The amount payable per week is obvious where pay is fixed. If it is not, then a 12-week average is used.

When planning holidays, consider employees on irregular hours. For those with variable work patterns, holiday pay must reflect the average weekly pay over the previous 52 weeks, including any overtime or commissions. This ensures fairness and compliance with regulations.

Additionally, clear policies should be in place to manage holiday requests, preventing understaffing and ensuring smooth operations. Encourage staff to plan holidays early, balancing business needs with employee well-being.

Moreover, keeping accurate records of leave taken and remaining entitlements helps avoid disputes and ensures legal compliance. Remember, a transparent and fair holiday policy fosters a positive work environment, enhancing employee satisfaction and retention.

Here is a link if you need more information.

https://www.gov.uk/calculate-your-holiday-entitlement

If you’re interested in this week’s topic but not sure what to do next, contact us via the link below. We’re always trying to help businesses to succeed, so, by working with them, we can help them to reach their goals. Just give us a call or an email via the information on our contact page.

Find a chartered accountant | Contact Us

#holiday #holidaypay #takecontrol #holidaytravel #wagesandsalaries #employeebenefits #employersolutions #employersupport

STARTING A FOOD BUSINESS?

When you start a new food business or take over an existing business, you must register with your local authority. You should do this at least 28 days before food operations start.

This applies to food businesses trading:

• from physical customer-facing premises
• from home
• from a mobile unit or temporary premises
• online (for example via social media or a website) or through distance selling (distance selling means any selling that happens without face-to-face contact with the consumer)

You will need to register if you:

• sell food.
• cook food.
• store or handle food
• prepare food.
• distribute food.

Companies involved with food distribution, brokerage or food supply that operate from an office should also register as a food business.

Additionally, registration is free and cannot be refused. It’s essential to keep your registration details up to date, notifying the local authority of any significant changes to your business, such as a change of address, business activities, or ownership.

Failing to register can result in fines or other legal consequences, so ensure compliance to avoid disruptions. Registration helps local authorities conduct necessary inspections and provide support to ensure your business meets food safety standards.

For more detailed information and assistance with the registration process, contact your local authority or visit their website for guidelines and resources.

This applies even if no food is kept at the premises. If you operate in more than one location, you need to register each premise with the local authority in which they are located.

You can register here: https://register.food.gov.uk/new

Baxterworld offers accounting and financial guidance to companies in both the UK and Ireland. If you’re unsure of this week’s topic or you’re interested in learning more, feel free to contact is today!

#food #foodandbeverage #foodforthought #foodsupplier #restaurantowner #foodtruck #foodtrends #foodvendor #cafe #fastfood #finedining #trading #foodbusiness #foodbusinessowner

Are you a man born after 6^th April 1951 or a woman born after 6^th April 1953?

If so and, if you have any gaps in your National Insurance record you have a special opportunity to top up contributions back to April 2006 onwards.

For a full state pension, you need 35 years of contributions. You may have a gap for any of the following reasons:

• Your income has been by way of dividends with any salary under the lower earnings limit.
• You were self-employed but exempted paying contributions because of low profits.
• You were employed but had low earnings.
• You were living or working abroad.
• You took a career break.
• You were unemployed but did not claim benefits.

You can check for gaps in you NI record here:

HMRC services: sign in or register: Sign in to HMRC online services – GOV.UK (www.gov.uk)

You will need a Government Gateway user ID and password. If you find that you do have gaps, you need to way up the cost and benefit from filling those gaps.

This opportunity ends on 05 April 2025.

The Intellectual Property Office (IPO) will be launching a new digital patents service soon.

The timeline is:

The big event is the launch of One IPO which will allow patents applications to be made online. A pilot will be available later this year and patents customers can join the pilot using this link:

[email protected]

A webinar on how applying for patents will change is being held on 7 June 2023.

You can join using this link:

https://register.gotowebinar.com/register/8383944816864476505

New minimum wage rates from 1 April 2023 

A handy reminder of the new numbers: 

Age                   Old rate           New Rate                     %age 

23                      £9.50                £10.42                              9.7% 

21-22                 £9.18                £10.18                            10.9% 

18-20                £6.83                  £7.49                              9.7% 

16-17                £4.81                 £5.28                               9.7% 

Read more at: 

https://www.nibusinessinfo.co.uk/minimum-wage-rates

These changes aim to ensure that workers receive a fair wage that aligns with the cost of living. The increases are particularly significant for younger workers and apprentices, who often earn lower wages compared to their older counterparts. This adjustment helps to narrow the income gap and provide better financial support for all employees.

Impact on Employers and Employees

Employers

Businesses must update their payroll systems to reflect the new rates from 1 April 2023. Failure to comply can result in penalties and damage to the company’s reputation. Employers should also communicate these changes to their staff to ensure transparency and understanding.

Employees

For workers, the new rates mean higher take-home pay, which can contribute to better financial stability and quality of life. Employees should check their pay slips from April onwards to ensure they are receiving the correct wages.

Conclusion

The new minimum wage rates represent a positive step towards improving earnings for low-paid workers in the UK. Both employers and employees need to be aware of these changes and take the necessary actions to comply with and benefit from the updated regulations.

For further information, guidance, and support on the new minimum wage rates, visit the official UK government website or consult with your HR department. Better yet, contact us at Baxterworld today for help and advice.

https://baxterworld.com/contact-us/