COMPLIANCE
Benefits and the basis period Taxpayers receiving tax credits or universal credit should not include transition profits when reporting earnings to the Department for Work and Pensions, but additional tax or National Insurance contributions due to basis period reform could impact universal credit eligibility, requiring careful consideration. Student loan repayments Basis period reform affects student loans as transition profits impact loan repayments and household income assessments, potentially pushing taxpayers over repayment thresholds unexpectedly. Confusion for sole traders While the agent community has been aware of these changes for some time, many unrepresented taxpayers only realised the change recently ahead of the 2023/24 transitional year as a result of HMRC’s targeted campaign in February. As the article has probably already set out, the implications of the reform aren’t the easiest to understand so many
annual allowance taper calculation, although transition profits do count towards relevant UK earnings for pension tax relief.
taxpayers may have been left scratching their heads when the brown envelope from HMRC dropped on their doormat. However, HMRC also launched an interactive tool to help taxpayers navigate the changes ahead. The tool is designed to assist sole traders in completing their 2023/24 self-assessment tax return correctly. But it wasn’t a completely smooth ride from there. When AccountingWEB’s tax editor Amy Chin tested the tool in April, she discovered that once the tool spits out the figures, the guidance on where on the self-employment pages of the tax return they should go is hard to find and unclear. “This, as well as ambiguous and inconsistent wording of some of the questions within the tool, is likely to cause confusion for taxpayers and accountants”, wrote Chin. Next steps That’s a whistle-stop tour through the story so far with the basis period reform. The first POA will be due on 31 July 2024 for the next tax year. And so, although it’s not in the first quarter, people are going to have to start thinking about cashflow and spreading the overlap relief. The basis period reform should remove some of the complexity around taxable profits. But as agents and taxpayers start to prepare and file tax returns for 2023/24, there will likely be further headaches and tricky interactions that come to light. n
Personal allowance Transition profits, although excluded
from net income, can still affect personal allowance tapering if they push a taxpayer’s net income over £100,000, impacting the loss of personal allowance. Tax payments Basis period reform doesn’t alter tax payment deadlines but may impact payments on account (POAs), potentially increasing them if transition profits inflate the previous year’s tax liability, requiring taxpayers to ensure POAs remain appropriate. How does the basis period interact with capital gains tax (CGT)? HM Revenue and Customs (HMRC) clarified that basis period reform doesn’t affect CGT rates, as transition profits are subject to a separate tax charge and not tied to specific income tax rates.
“The implications of the reform aren’t the easiest to understand so many taxpayers may have been left scratching their heads when the brown envelope from HM Revenue and Customs dropped on their doormat”
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| Professional in Payroll, Pensions and Reward |
Issue 102 | July - August 2024
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