In this blog you will learn about the forthcoming changes in the basis periods for the self employed and partnership and how that could give you a tax headache.
The basis period is changing so that from April 2024, unincorporated business will be taxed on a tax year basis instead of an accounting year basis. This means that sole traders and partnerships will need to report on profits generated in the tax year (6 April to following 5 April) instead of their accounting period.
The transition year will be the 2023-24 tax year and in this year businesses with a year end that does not align with the tax year will report on a longer basis period. Let me give you an example by way of illustration.
Steve is a self employed shop fitter and for years he has prepared his accounts to 30 September. His basis period for 2023-24 will be made up of two parts – his accounting year to 30 September 2023 plus the transitional period from 1 October 2023 to 5 April 2024. This means that Steve will be taxed on 18 months’ profit in his 2023-24 tax return. This obviously may push him into higher rates for that year with the consequence of increased tax liabilities.
H.M. Revenue & Customs have announced one concession – they will allow tax payers with these overlapping profits to spread them over five years.
It may be sensible for tax payers to align their year-end with the tax year so that they avoid the need to apportion profits over two periods going forward with the administrative burden that entails.
We are here to help, so if you are concerned about the changes noted in this blog, then please get in touch and we will advise you on your specific situation.
