The ‘transitional’ 2023/24 tax year for Basis Period Reform is now well under way, and unless your accounting year end is already between 31st March and 5th April, you should urgently assess how you will be affected, and what you could do to mitigate the potential financial and compliance costs.
In previous articles we have looked at the general implications of Basis Period Reform for sole traders and partnerships:
and more specifically at how farmers will be affected
Please follow the links if you need a refresher!
The purpose of this brief article is to highlight just some of the challenges being thrown up by Basis Period Reform, and to remind you that we are well placed to help you understand what they mean for you, and how you can best deal with them.
Can I claim overlap relief?
Any overlap relief brought forward will automatically reduce the profits which fall into the transitional 2023/24 tax year, and so it is essential to establish how much relief you have available, if any. Unless this has been recorded in previous years’ tax returns, it may be necessary to look back many years to calculate the relief. HMRC have offered to help where they can, but this should not be relied upon.
How will my cash flow be affected?
With additional tax likely to be payable in January 2025 and beyond, the sooner you can assess the impact on your cash flow, the better. Although any extra ‘transitional’ tax arising in 2023/24 will automatically be spread over five years without interest, depending on your circumstances it may be better to elect to pay it sooner.
Should I change my year end?
On the face of it, changing your year end to 31st March or 5th April might seem an obvious solution, not least because it will avoid any need to estimate profits for the latter part of each tax year, and to file amended tax returns once those profits have been finalised. It will also help you to comply with Making Tax Digital (MTD) for income tax which (after several false starts) is now due to hit many self-employed taxpayers from April 2026. There may however be commercial or other reasons to retain your existing year end, so be sure to weigh up the pros and cons first.
Please get in touch with your usual Scrutton Bland contact to discuss how they can help you to mitigate the effects of Basis Period Reform.