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Tax Agents Informed by HMRC On UK Tax Year Basis Reforms

HMRC has set out how upcoming changes to the tax year basis will affect sole traders and partners, in an update for tax agents.

According HMRC only taxpayers with an accounting date other than March 31 or April 5 will be affected by the changes.

HM Revenue and Customs explained: “The rules HMRC use to work out sole traders’ and partners@ profits for Income Tax in a Self-Assessment return are changing for many businesses from the tax year 2023 to 2024 onwards. This may affect the return that they must submit by January 31, 2025. It will also affect subsequent returns.”

“This change is not affected by the delay to the introduction of Making Tax Digital for Income Tax Self-Assessment announced on December 19,2022.”

Businesses will be taxed on profits for the tax year and not, as now, the profits for the accounting year ending in a tax year, under the new rules from April 6, 2024.

For tax year 2024 to 2025 and future years, where accounting years are different from the tax year end, the taxable profits will be worked out by apportioning the profits for the two accounting periods that straddle the tax year.

“The tax year 2023 to 2024 is a ‘transition year’ in which self-employed businesses will move to the new way of calculating taxable profits for the tax year. Businesses will need to declare the total profits from the end of the last accounting date in tax year 2022 to 2023 up to April 5, 2024. This means that profits generated over a longer period will be taxable in the transition year.” – explained the HMRC.

In the tax year 2023 to 2024, businesses can use any overlap relief resulting from overlap profit when the business first started. By default, any remaining additional profit can be spread over 5 years” according to HMRC.

“From tax year 2023 to 2024 onwards, some businesses might have to use provisional figures on their returns. The government will relax its guidance to give businesses the normal amendment time limits to submit their final figures if they have submitted provisional figures as part of their tax return.”

“Where a business’s accounting date is changed in tax year 2022 to 2023, the current change of accounting date rules will apply. Where a business decides to change its accounting date from 2023 to 2024 onwards, these rules will not apply, and a change can be made regardless of past changes,” HMRC said.

“For businesses changing accounting date in the 2021 to 2022 tax year, HMRC will be able to provide details of overlap relief figures, or historic profit figures, on request, these figures are recorded in HMRC systems. Taxpayers should phone the HMRC Self-Assessment Helpline and agents should phone the Agent Dedicated Line if they need this information to complete a 2021 to 2022 tax return.”

It concluded: “Taxpayers looking to change accounting dates and use overlap relief in tax years 2022 to 2023, or 2023 to 2024 should wait until further information on the provision of overlap relief figures for these tax years is announced.”

Further guidance will be released in due course by the tax agency.


If you require assistance in relation to the above and/or would like to discuss anything further, please do not hesitate to contact or your usual A.C.T. contact.


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