The Government’s response to the House of Lords Economic Affairs Finance Bill Sub-Committee report into two tax law changes one of which includes basis period reform has been published. In respect of recommendation two that “HMRC should commit publicly to providing details of overlap relief from their records for those businesses that need it and, where a specific record is not available, reconstruct the amount available from the information HMRC has.”, the Government has responded to set out the commitment that HMRC will make to assist businesses and agents in confirming the amount of overlap relief available to reduce transitional profits, where it can. This was a key recommendation of Chartered Accountants Ireland in its response to the consultation on basis period reform. Another recommendation of the Institute’s to delay the new VAT penalties which were due to come into operation on 6 April 2022 was announced by the Financial Secretary to the Treasury at the end of January.
According to the Government’s response, the Government understands that some businesses may have lost records of overlap relief over time. HMRC holds data on overlap relief where a business has, at some point, reported the amount of relief it has generated on its tax return, and this data can be provided on request.
The Government would like to inform businesses, if possible, of the figures that HMRC holds on overlap relief in advance of the basis period reform transition year of 2023/24. Where HMRC does not currently hold a specific record on the amount of overlap relief carried forward, it may be possible to identify overlap periods in past years’ tax returns and reconstruct a figure for overlap relief. HMRC is exploring the feasibility and resources required to provide reconstructed overlap relief figures before committing to provide these figures. Finance Act 2022 contains provisions which ensure that businesses will be able to use as much relief as possible in the transitional year 2023/24.
However, the Government cannot commit to providing details of overlap relief and reconstructing amounts where a specific record is not available by 5 April 2022. It will therefore carefully consider the timing and method of any communications on overlap relief in advance of the transition year in 2023/24, particularly for those businesses that are not represented by a tax agent or accountant.
HMRC has now published its technical guidance on basis period reform as part of the Business Income Manual at BIM81200 available on GOV.UK. This guidance covers the transitional rules for 2023/24 and the change from current year basis to tax year basis in full from 2024/25 onwards. The guidance includes worked examples to demonstrate how the new rules apply in various situations.
The next stage in the Government’s implementation of basis period reform is to explore the options for policy/administrative easements for those businesses who will need to provide provisional figures. Chartered Accountants Ireland will be engaging with HMRC on this.
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