Tax year set to change

By Robin Stride

Independent practitioners are being warned they face an administrative ‘nightmare’ under plans which could confront them with a change of tax year alongside the move to Making Tax Digital (MTD).

The Office of Tax Simplification (OTS) is suggesting two options for the Treasury to replace the date of the end of the fiscal year from 5 April – and most businesses back a change to bring the UK in line with other countries, according to a study by accounting firm BDO.

With MTD’s obligation to keep records digitally and report information quarterly being extended from VAT-registered businesses to all unincorporated income taxpayers from April 2023, it is feared solo practitioners particularly will struggle to cope.

Administrative burden

Vanessa Sanders

Specialist medical accountant Vanessa Sanders, of Stanbridge Associates, said: ‘The administrative burden of operating all this alone is so overwhelming that doing it as a group will be much more time and cost-effective. 

‘Some doctors may think this is too much of a headache and it will bring forward the retirements of those towards the end of their careers. 

‘We’ve seen this already. Fewer doctors are going it alone. Most are joining together; it has been a trend for a while.’ 

The OTS’s year-end proposals are either:

31 March: The end of a calendar quarter and the UK financial year-end date used by the UK Government for its own accounts, or;

31 December: The calendar year end adopted by other large jurisdictions such as the US, Canada, Germany and France.

Mrs Sanders said: ‘Consultants and private GPs are going to face having to change the way they do business because things will have to be in real time. They are already going to have to do so with MTD.

‘But changing the year-end will impact on when they will have to retrieve information; for example, if they are non-UK residents and have overseas income, they will have to get that in real time and process the information correctly.

Pay tax earlier

‘There are financial and administrative burdens for those who are self-employed and who enjoy rental income already because they will have to change their accounting systems to cope with MTD. Altering these systems again will cause more headaches.

‘It may mean they have to pay tax earlier than when they are used to. It will mean changes to inquiries and how they are conducted – although this is not a massive problem for consultants because they are not an HM Revenue and Customs [HMRC] target anymore. Dentists and private GPs are the main target in our experience.

‘Some doctors doing medico- legal work could be left strapped for cash because they are going to have to pay their tax earlier and there are a lot of time lags between doing the work and receiving payment.

‘There’s going to be greater reliance on their adviser for ensuring they are compliant, because the penalty structure is changing too. 

‘Doctors may see their tax codes being altered more often as their information is given more frequently to HMRC. It will be a short-term nightmare – but with longer-term benefits. The positive is they will be able to plan better. 

‘Their accountant will be able to help them plan with more certainty, not just for paying tax but to achieve their future financial goals.’

More change is likely to increase pressure on HMRC staff whose extra work due to Covid grants, loans and VAT/income tax payments extensions have put correspondence six weeks behind.

Accountants warned that delays could be expected for getting references to pay tax, register for self-assessment or setting up new payroll schemes.

David Redfern, of DSR Tax Refunds Ltd, said the UK’s tax year beginning on 6 April had long been an international anomaly. He has told clients the UK is the odd-one out, not only because of its April start but also for splitting that month between two tax years, adding to tax accounting complexity. 

He said the last thing business needed right now was additional administrative burden. But a change, although a complex process, would ultimately make things simpler for small businesses and make it easier for companies with an international foothold.