The basis of assessment reforms will change the way trading income is allocated to tax years. The changes will affect sole traders and partnerships that use an accounting date between 6 April and 30 March. There is no change to the rule for companies.

The reforms will change the basis period from a ‘current year basis’ to a ‘tax year basis’.

Under the current rules there can be overlapping basis periods. When this occurs, tax may be charged on profits twice and generate ‘overlap relief’. This overlap relief can be used on the cessation of a business or when an accounting date is changed. The new method of using a ‘tax year basis’ will remove the basis period rules and prevents the creation of further overlap relief.

The new rules will come into effect in the 2024-25 tax year and the current 2023-24 tax year is known as the ‘transition year’. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief can be used against profits for that tax year.

Affected businesses in 2023-24 will be assessed on the tax for profits for the:

• 12 month accounting period they have previously been using; and
• for the rest of the 2023-24 tax year.

Any excess profit covering more than 12 months, is known as ‘transition profit’. This can be reduced by overlap relief and the remaining profit will be spread over the next 5 tax years until 2027-28.

The changes do not affect sole traders and partnerships who draw up annual accounts to a date between 31 March and 5 April. These businesses will continue to file as usual for the 2023-24 accounting year.

Employers usually have to pay employees through PAYE if they earn £123 or more a week (£533 a month or £6,396 a year). There is no requirement to pay self-employed workers through PAYE.

HMRC’s guidance states that:

As a general rule, someone is:

• employed if they work for you and do not have any of the risks associated with running a business; and
• self-employed if they run their own business and are responsible for its success or failure.

There are specific rules for temporary or agency workers. Employers need to operate PAYE on temporary workers that they pay directly, as long as they’re classed as an employee. There is not usually a requirement to operate PAYE if a worker is paid by an agency, unless the agency is based abroad and does not have either a trading address or a representative in the UK.

Employers that take on a new employee need to work out which tax code and starter declaration to use in their payroll software. Incorrect tax codes can lead to the new employee paying more tax than is due.

The necessary information can be collected from the employee’s P45 or by asking the new employee to complete HMRC's starter checklist (if they do not have a recent P45 – this checklist replaced the P46).

There is a permanent easement in place for employers to report PAYE information in real time over the Christmas period. This can be for a number of reasons, for example, during the Christmas period the business may close meaning workers need to be paid earlier than normal.

Employers that pay wages early over the Christmas period should report their normal or contractual payday as the payment date on their Full Payment Submission (FPS) and ensure that the FPS is submitted on or before this date. Doing this will help to protect employees’ eligibility for Universal Credit, as reporting the payday as the payment date may affect current and future entitlements.

HMRC provides the following illustrative example:

If you pay on Friday 15 December 2023 but the normal or contractual payment date is Friday 29 December 2023, you will need to report the payment date on the FPS as 29 December 2023 and ensure the submission is sent on or before 29 December 2023.

The overriding PAYE reporting obligation for employers is unaffected by this exception and remains that you must report payments on or before the date the employee is paid.

HMRC has published revised guidance concerning the charging of company cars and vans at residential properties. HMRC had previously maintained that the reimbursement of costs in relation to charging a company car or van at a residential property was a taxable benefit. This advice seemed at odds with the exemption on payments and benefits provided in connection with company cars and vans laid out in the relevant legislation.

HMRC has now confirmed, following a review of their position, that the electric charging of company vehicles at home base can now be treated as a tax-free benefit.

HMRC has published revised guidance about this change in interpretation and has stated that:

Following a review of our position, HMRC now accepts reimbursing part of a domestic energy bill, which is used to charge a company car or van, will fall within the exemption provided by section 239 ITEPA 2003.

This means that no separate charge to tax under the benefits code will arise where an employer reimburses the employee for the cost of electricity to charge their company car or van at home.

HMRC has also said that the exemption will only apply where it can be demonstrated that the electricity was used to charge the company car or van. Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.

In the ever-changing economic landscape, business owners are constantly faced with challenges that can impact the financial health of their enterprises.

During such trying times, management accounting proves to be an invaluable tool, providing crucial insights and strategic advantages that can make the difference between survival and success.

Enhanced decision-making

Management accounting allows business owners to make informed decisions based on real-time data and financial insights. According to a survey by the Chartered Institute of Management Accountants (CIMA), 80 per cent of businesses reported that management accountants helped in making informed decisions during economic uncertainties.

Cost control

In challenging economic times, cost control is vital. Management accounting helps businesses identify areas where costs can be reduced or eliminated, thus improving overall profitability. According to a 2020 survey by the Association of Chartered Certified Accountants (ACCA), 88 per cent of businesses in the UK used management accounting techniques to control costs during the COVID-19 pandemic.

Cash flow management

Maintaining a healthy cash flow is essential for business survival. Management accounting tools and techniques help business owners forecast cash flow, ensuring that there are adequate funds to meet financial obligations. In 2021, a study by Sage indicated that 53 per cent of UK businesses used cash flow forecasts to navigate economic challenges.

Scenario analysis

Management accountants can create various financial scenarios to assess the potential impact of different economic conditions on a business. This proactive approach helps business owners prepare for uncertainty. The same study by CIMA mentioned earlier found that 75 per cent of UK businesses used scenario analysis during economic challenges.

Performance measurement

Business owners can use key performance indicators (KPIs) to assess their company's financial performance and identify areas for improvement. KPIs provide a clear picture of how well the business is doing, even in challenging economic conditions.

Risk management

Management accounting helps business owners identify and manage financial risks. This can be particularly beneficial in times of economic uncertainty, as businesses can adapt and respond to changing circumstances effectively. The Sage study noted that 67 per cent of UK businesses used risk management techniques during the COVID-19 pandemic.

Budgeting and forecasting

Effective budgeting and forecasting are essential for financial planning and ensuring a business's long-term sustainability. According to a 2021 report by Deloitte, 76 per cent of UK businesses used budgeting and forecasting to navigate economic challenges in the previous year.

Tax planning

Management accountants can provide valuable tax planning strategies, helping business owners optimise their tax liabilities while complying with tax regulations. This can result in significant cost savings.

Stakeholder confidence

Businesses that use management accounting to navigate challenging economic environments often have more transparent and reliable financial reporting. This can boost the confidence of stakeholders, including investors, lenders, and shareholders.

Management accounting plays a pivotal role in helping business owners thrive in challenging economic times. With benefits ranging from informed decision-making and cost control to cash flow management and risk mitigation, it is a powerful tool for navigating economic uncertainties.

The statistics from reputable sources underscore the real-world impact and effectiveness of management accounting in ensuring business resilience and success, making it an indispensable resource for business owners in challenging economic environments.

Can we help? Get in touch.