Basis period reform provisional figures consultation – Law Society response
Last year, we responded to HMRC’s consultation on the way trading profits – including profits of the solicitors' profession – are allocated to tax years for tax purposes.
This is also known as basis period reform.
The reforms are now enacted in Finance Act 2022 and there will be a transitional year to bring them into effect from April 2023.
The changes will result in more income tax payers, including a significant proportion of partners in law firms, needing to submit provisional figures in their tax returns, which will subsequently need to be corrected.
The reforms give rise to particular complexities for large, international law firms.
HMRC is consulting on potential easements for people and firms in that situation. The proposed options include:
- allowing more time to file amended tax returns
- extending tax return deadlines
- allowing adjustments to a previous return in the following tax return
Our submission seeks to identify, explain and promote potential easements that are likely to be comparatively more helpful to law firms.
Amendments should be allowed either by re-filing returns or by making adjustments in the following return (each to sufficiently generous deadlines).
We also request:
- a deferral of the commencement of the new rules for partnerships and LLPs
- a partnership level return mechanism
- a safe harbour rule in relation to interest on underpaid tax
HMRC will evaluate the information and views received through the consultation.
It aims to identify any solutions by autumn 2022.