Government abolishes basis period rules for profit reporting, affecting thousands of sole traders and partnerships.
What does it mean to you and your business?
From April 2024, HM Revenue and Customs (HMRC) is altering the way that profits are reported for tax purposes. Unlike before, when you could report profits based on your business’s accounting year, you will now need to align this with the tax year, which ends on April 5th. This is expected to simplify the process but might lead to larger tax bills in the short term for some.
Who is Affected?
These changes specifically impact self-employed individuals and partners who do not align their accounting year with the end of the tax year (March 31st to April 5th). It’s estimated that over half a million businesses are in this category.
What Does This Mean for You?
If your business’s accounting year end does not align with the tax year, you may be required to report and potentially pay tax on a larger amount of income during the transition period for the 2023-24 tax year. This could result in paying tax on more than one year’s profit in your upcoming tax bill.
How We Can Help
We can assist you in several ways:
1) Understanding Your Tax Position: We can calculate the additional tax you may owe because of this change.
2) Cash Flow Management: We’ll help ensure you have funds set aside to cover any additional tax liabilities.
3) Spreading the Tax Burden: HMRC allows you to spread the excess tax payment over five years, and we can guide you on how to take advantage of this relief.
4) Accounting Period Adjustment: We can evaluate if it’s beneficial for you to change your accounting period to match the tax year end.
Please rest assured that while these changes may seem daunting, we are here to help you navigate through them. Our goal is to minimise any disruption to you and ensure that you are fully informed and prepared.
We recommend scheduling a meeting to discuss how these changes specifically impact your business and to plan accordingly. Please call us on 020 8863 4566 to arrange a consultation at your earliest convenience or contact us.