Preparing for the new tax year basis — Income Tax Self Assessment return

February 17, 2023

The rules HMRC use to calculate sole traders’ and partners’ profits for Income Tax in a Self Assessment (ITSA) return, are changing for many businesses for 2023 to 2024 onwards. This change may affect the return that taxpayers must submit by 31 January 2025 and subsequent returns. Our basis reform publication will provide further information.

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

Under the new rules, from April 2024, businesses will be taxed on profits for the tax year and not, as now, the profits for the accounting year ending within a tax year. Only taxpayers with an accounting date other than 31 March or 5 April are affected by this reform.

2023 to 2024 transition year

The 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 need to declare total profits from the end of their last accounting date in 2022 to 2023, up to 5 April 2024. Profits generated over a longer period, will be taxable in the transition year.

The transition year 2023 to 2024 presents an opportunity (for businesses currently trading), regardless of accounting date, to use any overlap relief resulting from overlap profit, from when the business first started. By default, any remaining profit can be spread over 5 years.

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

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

2024 to 2025 and future years

For 2024 to 2025 and future years where accounting years are different from the tax year end, the taxable profits will be calculated, by apportioning the profits for the 2 accounting periods that straddle the tax year.

Accounting date changes

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

The current change of accounting date rules will:

  • Apply where a business’s accounting date is changed in 2022 to 2023
  • Not apply where a business decides to change its accounting date from 2023 to 2024 onwards and a further change can be made, regardless of past changes

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.

Ahead of upcoming guidance publication on GOV.UK, both the Basis period reform policy paper and GOV.UK news story on basis period reform will provide background information.

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