The Budget 2018

    Business Tax

    Spring Statement

    No extra measures were announced to take effect immediately. However, the Chancellor noted that productivity is lower in the UK than the average
    for countries in the Organisation for Economic Cooperation and Development, and promised consultation through the summer on measures to be included in the next Budget to address this. Areas that will be considered include incentives for training people, for encouraging innovation and development of ideas through research and development, and incentivising capital investment.

    The 2021 Budgets in March and October already included measures on research and development and capital allowances, described below. It seems likely that there will be more significant changes to follow, in particular when the benefits of the higher Annual Investment Allowance and the ‘super deduction’ for plant are phased out. 

    Reform of basis periods

    For sole traders and individuals who are members of partnerships (including limited liability partnerships), the profits assessable in a tax year are those arising in the ‘basis period’ for that year, which is normally the accounting period ending in the tax year. Special rules apply on commencement and cessation of trade, as well as on a change of accounting date. These produce complications, such as some profits being assessed twice (‘overlap profits’). The double charge then has to be relieved later, usually on cessation of trade (and sometimes where the business changes its year-end).

    From 2024/25 (a year later than originally planned), a different basis of assessing profits is being introduced. Trading profits chargeable in a tax year will be the profits actually arising in that tax year. These will be calculated by apportioning the business accounting periods across tax years if the business does not have a 31 March or 5 April year-end.

    2023/24 will be a transitional year for moving from the old to the new basis of assessment. It will involve up to 23 months’ profits being assessed
    in the year, with full relief for any overlap profits previously taxed twice. As businesses may have a significant increase in taxable profits for 2023/24 due to these rules, such additional profits will be spread over a period of five years (although a business may opt out of spreading during this time and bring more of the profits into charge earlier). The rules will also ignore the extra transition year profits when calculating the High Income Child Benefit Charge, the abatement of personal allowance where income exceeds £100,000, and the averaging of profits that is available to certain taxpayers such as farmers and creative artists.

    Businesses with accounting periods ending early in a tax year (e.g. 30 April or 31 May) will have a much smaller delay between profits being earned and tax being payable on them. Any self-employed trader, partnership or LLP with an accounting date other than 31 March or 5 April should consider the effect of this change as a matter of urgency. 

    Carry back of losses

    The March 2021 Budget extended the period for which companies and unincorporated businesses can ‘carry back’ losses to offset against taxable profits of earlier years and claim a refund of tax paid on those profits. Losses of 2020/21 and 2021/22 (for companies, accounting periods that end between 1 April 2020 and 31 March 2022) can be carried back three years (subject to monetary limits). This rule has not been extended, so losses of 2022/23 will revert to the normal carry back period of one year.