New announcement. Learn more

News and advice to help make your business a success
Landlords TaxProperty TaxLandlords Tax ReturnsProperty AccountsProperty Tax ReturnLandlords AccountsChartered AccountantsOnline AccountantOnline BookkeepingOnline Tax ReturnsTax ReturnsYour Online AccountantYour Online BookkeeperBusinessadviceAccountingCashflowSmallbusinessBusinesstipsProperty AccountantTaxTaxplanningVATFurnished Holiday LettingsInheritance TaxPropertyProperty bookkeeperAnnual Exempt AmountCapital AllowancesCapital gains tax propertyComplianceDeductibleexpensesEmployment AllowanceFinanceHoliday Lets TaxLandlords AccountantLandlords FinancialMaking Tax DigitalMileage AllowanceMobilephonesPensionPprProperty Company TaxProperty Tax Deductible ExpensesRent a Room ReliefTaxreturnTimetoPayVAT invoice60 day capital gains limitAccrualsbasisAcquisitionsAdvisoryfuelratesAIAirBnBAllowable Business ExpensesAlphabet sharesAmapAnnual Tax on Enveloped DwellingsAppealAssessmentAsset disposalAssociated CompanyAssociated Company Tax RulesBad DebtBad Debt Tax ReliefBaddebtsBadgesoftradeBeancounterBenefits in KindBreakeven PointBudgetBusiness adviceBusiness asset defermentBusiness coachBusiness ContinuityBusiness EntertainmentBusiness ExpensesBusiness RateBusiness Rates ReliefBusiness tipsBusinessgrowthBusinesstypesBuy or Lease EquipmentBuytoletCapital Allowances for CarsCar Capital AllowancesCarry Back LossesCgtChange of Tax BasisChatGPTCIS SchemeCommon TenantCompanies ExpenditureCompanies HouseCompany Account DeadlinesCompany Account FilingCompany Strike OffCompany Tax Efficient PropertyCompulsory Strike OffConstruction Industry SchemeContacthmrcContentmarketingCorporation Tax LossesCorporation Tax New RegimeCorporation Tax RatesCorporationTaxCostsCryptocurrencyDeductible Business ExpensesDevelopmentDirectorsDirectors LoansDirectorsloansDisallowable Business ExpensesDiscoveryDisincorporationDividend allowanceDividend Allowance ReductionDividend PlanningDividendsDLADomestic Items Tax ReliefEmployee DiscountEmployee managementEndoflifeplanningEnquiryEquityExpensesExpenses Allowed For TaxEyetestsFHLsFinancialmanagementFlippingFurnished Holiday Lets TaxGift AidGrowthhacksHelp to pay tax billsHMO Licensing FeesHMRC complaintsHoliday Lettings TaxHow to apply for a Business LoanHow to Extract ProfitHumourIhtexemptionsIllegaldividendsInheritance Tax Nil Rate BandInvestment Property TaxJoint TenantLandlord RepairsLandlords Self AssessmentLate vat registrationLBTTLeadgenerationLeadmagnetLeanbusinessmodelLetting Agent DisbursementsLetting Agent RecharresLettings ReliefLimitedcompanyLong Lets TaxLongserviceLTTMainresidencereliefMakingTaxDigitalManaged LetsManagement accountingMileage paymentMinimumwageMixedusesdltMortgage costsMortgage Interest ReliefNewcompanycarfuelratesNewnicrulesNIC 2023 to 2024NIC savingsNon-taxableOptiontotaxvatOverlapreliefOverpayment ReliefPartnershipPartnershipbusinessesParttimePAYEPAYE by Direct DebitPenaltypointsPension Payments Tax ReliefPerformance-reviewsPeriodsofabsencePersonal financePersonalallowancePersonalguaranteesProfitProfit-and-lossProperty AllowanceProperty Development CompanyProperty IncorporationProperty Investment CompanyProperty investor accountsProperty investor tax tipsProperty LettingProperty Rental BusinessProperty TradingPropertyallowanceRecharges by Estate AgentsRegularpaymentsReimbursedexpensesRent your driveRentalRentaroomResearch & DevolopmentResidence ReliefResidential property gainsRetail stock controlRetainedprofitsRoom for rent taxSASalarySDLTSDLT changesSection 455 TaxSelective Licences LandlordsSelf AssessmentSelf-employednicSelfemployedSeperationServicechargesSimplified ExpensesSmall BusinessSmallbizSmallbusinessratereliefSoftwareSpring BudgetStamp dutyTax Allowance on DrivewaysTax AllowancesTax DeadlinesTax Filing DeadlinesTax Free ChildcareTax free incomeTax on Company VansTax positionTax ReliefTax tips for landlordsTaxbillpaymentsTaxconsequencesTaxincentivesTaxpositionTaxreliefsTaxsesTerminationpaymentsTipsTransfer AssetsTransfer Assets Between SpousesUnpaid RentVAT Bad Debt ReliefVAT DeadlinesVAT DisbursementsVAT PenaltiesVAT registrationVatpenaltiesVatregistrationthresholdWellbeing
TAGS

Change of Tax Basis Period for unincorporated businesses: are you ready?

Change of Tax Basis Period for unincorporated businesses: are you ready?

Are you self-employed? Or are you a partner in a trading partnership? If you are, you should be aware of the proposed changes to the tax basis period for unincorporated businesses.

HM Revenue & Customs (HMRC) is proposing to change the way that unincorporated businesses are taxed, moving from a ‘current year’ basis to a ‘tax year’ basis. For affected businesses (those that don’t have a year-end between 31 March and 5 April), this could mean a much larger tax bill for the 2023/24 tax year.

So, when are these changes coming in? And what will the potential impact be for sole traders and partners?

What does a change in the base period mean?

Self-employed people and partners in trading partnerships generally prepare accounts to the same fixed date each year. This is known as the ‘basis period’. For tax purposes, profits are currently taxed in the tax year in which the basis period ends.

  • For example, if your business has a 30 June period end, profits for the year to 30/06/2022 would be taxed in the 2022/23 tax year ending 5 April 2023. The tax would then be payable by January 2024.

  • From the 2024/25 tax year, all business will be taxed on a tax-year basis (with 31 March to 5 April being treated as coterminous with the tax year-end). This means that they will pay tax for the 2024/25 year on profits earned in that year.

  • Why is that important? In effect, it means that all self-employed businesses and partners with any other year-end will be required to pay tax earlier than they would previously have done. And this could have a serious impact on tax planning and cashflow!

  • The 2023/24 tax year is a transitional year in which all affected businesses will be taxed on the profits for their basis period as now, PLUS the tax on their profits from the end of that basis period up to 31 March/5 April 2024.

  • Let’s take a 30th June business as an example. In the 2023/24 tax year you will be taxed on profits from 01/07/2022 to 31/03/2024. So, effectively, you’ll be taxed for 21 months instead of 12. The extra tax charged can be spread, but the change in base period will result in taxes being paid earlier than they are now.

  • Some of these businesses will have overlap profits carried forward in their tax returns. This will represent profits which were considered to have been taxed twice in their earlier years. That overlap profit can be deducted from the combined amounts being taxed in 2023/24. Any further additional taxable profits may be spread over up to five years, to reduce the impact.

  • The change to the base period will simplify reporting requirements as the Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) changes are rolled out. This change to the base period brings all other forms of income for individuals into account on a tax-year basis, making the whole process easier to administer.

Talk to us about the proposed changes to your accounting period-end

If the year-end for your business is not currently between 31 March and 5 April, you will potentially be taxed on more than a year’s profits in 2023/24.

Even with a facility to spread the excess, your tax bill will be higher and you could be forced into a higher marginal rate of tax – with all the negative impacts on your tax liabilities. This could be a very serious outcome if you’re not prepared for the changes.

For affected businesses, we can help you prepare forecasts of the likely impact, and consider ways to ease the transition. The earlier you begin planning, the smoother the transition will be.

Talk to us about the impact of the base period changes.