What is crystallisation?
Definition of crystallisation
Crystallisation is the term used by HMRC to describe the process a taxpayer goes through to finalise their end-of-year position for tax. This process is also known as a ‘final declaration’.
The crystallisation process will be introduced in April 2023 as part of the Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) initiative. This will replace the annual Self Assessment tax return for many taxpayers, and require affected taxpayers to keep their records digitally and file their tax return through accounting software.
Before starting the crystallisation process, the taxpayer will need to ensure that their accounting software is up to date with:
- a finalised End of Period Statement (EOPS) for each business or type of business income (for example, a taxpayer must file a separate EOPS for income from self-employment and income from letting out a property)
- their entire income (including interest on savings and dividend payments)
- any relevant additional information
The crystallisation process will then allow the taxpayer to finalise their tax position for the year and calculate their final tax liability.