Changes to the tax year basis

HMRC is reminding sole traders and partnerships of changes to the tax year basis for Self Assessment returns from the tax year 2023 to 2024 onwards

This will affect returns that must be submitted by the 31^st of January 2025. Only taxpayers with an accounting date other than the 31^st of March or 5^th of April will be affected.

So, if your accounting or financial year ends on the 31^st of March or 5^th of April you won’t need to change anything.

But if your financial year ends on any other date, you need to be aware of the changes to the tax year basis, how they will affect you and what you’ll need to do. Read on.

What are the changes to the tax year basis?

Under the new rules, from April 2024, businesses will be taxed on profits for the tax year. Not, as now, the profits for the accounting year ending in a tax year.

For the tax year 2024-25 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 2023-24 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 the tax year 2022-23 up to 5 April 2024. This means that profits generated over a longer period will be taxable in the transition year.

In the tax year 2023-24, 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 five years.

Example

As an example, if a business’s accounting date is 31 December, they must declare profits from 1 January 2023 to 5 April 2024 (15 months rather than 12) in their tax return for the tax year 2023-24, which is due by 31 January 2025.

From the tax year 2023-24 onwards, some businesses might have to use provisional figures on their returns. More information about this will be available in due course.

Where a business’s accounting date is changed in the tax year 2022-23, the current change of accounting date rules will apply. Where a business decides to change its accounting date from the tax year 2023-24 onwards, these rules will not apply and a change can be made regardless of past changes.