Is your firm ready for the cash flow challenge?
You may well have seen that there has been a consultation by HMRC that ended on August 31st.
The consultation has been about the way that profits are allocated to tax years from April 2023 under ‘Making Tax Digital’ reforms.
This is most likely to impact LLPs, partnerships and sole practices who do not have a 31 March or 5 April year-end. It is worth noting that the proposals DO NOT affect Companies.
How will the impact affect your tax year?
The proposal could cause significant timescale & cash flow challenges. HMRC in their proposed changes has made it known that they recognise that for the next two tax years there is likely to be some practical issues and that particularly in the ‘transition’ year of 2022/23 that some firms; “may experience higher than normal profits in the transition year as a result of the proposals” which “could increase tax liabilities for the transition year”.
In order to reduce the potential cash flow impact, HMRC are “proposing to allow an election to spread excess profits in the transition year over up to five years”.
How might it work?
To help with your understanding of how this may work for your firm, we have broken down some examples by tax year for both 2023/24 and 2022/23. Please see examples and breakdown here.
You may wish to discuss the potential tax and cash flow implications with your accountant.
Your eyes and ears…..
Here at Legal Eye we pride ourselves on having a keen awareness of the risk and compliance changes that may affect your firm.
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