Tax Year 2023/24

20 Nov 2024

Published in: Member News

Tax Year 2023/24: Understanding the Deadline and Basis Period Reform

As the 31 January 2025 Self Assessment tax return deadline approaches, businesses and individuals need to prepare for significant changes introduced by HMRC for the 2023/24 tax year. One of the most notable changes is the basis period reform, which impacts how profits are calculated and reported. This reform aims to simplify the tax system by aligning the accounting period of sole traders and partnerships with the tax year (6 April to 5 April). While this may streamline processes in the long term, it introduces an immediate challenge: transition profit calculation.

What Is the Basis Period Reform? Under the previous rules, businesses could choose their accounting year, which often resulted in overlapping profits being taxed in multiple tax years or left unassessed. The reform eliminates this flexibility by requiring all businesses to align their accounting period with the tax year.

Transition Profits: What You Need to Know The 2023/24 tax year serves as the transition year, where businesses must calculate and report any overlap profits from previous years. These overlap profits, which arise when the same income is taxed more than once due to differing accounting periods, will need to be included in the tax return. This transition could significantly affect taxable income, potentially leading to higher tax liabilities for the year.

However, HMRC has introduced measures to ease the burden: Spreading Tax Payments: Businesses can spread the tax owed on transition profits over five years, easing cash flow pressure. Reliefs and Adjustments: Certain tax reliefs may help offset the impact. Who Is Affected? The reform applies to: Sole traders and partnerships with accounting periods not aligned to the tax year. Businesses transitioning to align with the new rules in the 2023/24 tax year.

How to Prepare: This reform requires careful planning to ensure compliance and minimize financial impact.

Key steps include:

Identify Overlap Profits

Review your historical accounts to determine any overlap profits.

Calculate Transition Profits

Accurately calculate and report profits for the transition year.

Plan for Payments: If your tax liability increases, explore HMRC’s spreading options to manage payments.

Seek Professional Advice

Don’t Leave It to the Last Minute The 31 January 2025 deadline may seem far away, but the sooner you start, the smoother the process will be. Preparing early ensures you have time to understand your tax position, gather the necessary information, and take advantage of any available reliefs. Let me help you navigate this critical transition with ease.

Together, we’ll ensure your business is ready for the changes and positioned for future growth.

Phone: 07578 347264

Email: shahzad.younas@aims.co.uk

Website: aims.co.uk/accountants/shahzad-younas

For more insights and updates on tax changes, visit my website or get in touch today!

Submitted by Shahzad from AIMS Accountants
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