If you are a sole trader or partnership you need to understand the new “Tax Year” basis periods for income tax purposes.

The new basis comes in from 6 April 2024 but we are already in the transitional period.

The concept is very simple. Instead of being taxed each year on the profits from the accounting period ending in the tax year, you will be taxed on the profits arising in that tax year.

If you have a 31 March or 5 April year-end, you will not see any difference. The rest of you need to pay attention.

In order to compute the profits for 2024/25 and later years you will need to use 2 sets of accounts and apportion the profits accordingly to the tax year.

The current tax year 2023/24, is the transitional year when the profits in the gap get taxed. Anyone with a 30 April year-end will be worst affected. The catch up means they will be taxed on the profits to 30 April 2023 plus the profits from May 2023 to 5 April 2024, i.e. 11/12ths of the profits to 30 April 2024. It is these extra profits that, after certain adjustments, can be spread.

Spreading provisions allow you to spread the additional profits over 5 years, but it’s still not going to be pleasant. It’s a good time to look at some tax planning.

What can you do?

  1. Change your year-end
  2. Incorporate.
  3. Nothing

Time to see how the new rules affect you, and decide what you are going to do, to mitigate the extra tax.



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