As of the 2024 / 2025 tax year all unincorporated businesses have to use the tax year as
their basis period. This includes those unaffected by MTD for Income Tax.
Sole traders who already use the tax year (either 31st March or 5th April ) as both their
accounting and basis period; these changes will not affect them. But those that have
different accounting periods will have to adjust their profits from the transitional year of
2023 / 2024.
Here’s an example:
Currently if your accounting period ends 31st September 2021 you include those taxable
profits in your income tax self-assessment for tax year ending 5th April 2022.
From the tax year 2024/25 the new tax year basis of assessment applies.
Using the same example above for the tax year ending 5th April 2025, your assessment will
be calculated based on:
6/12ths accounting period ending 31st September 2024 plus
6/12ths accounting period ending 31st September 2025.
In the transitional year, tax year 2023/24 businesses that don’t have an accounting year end
date between 31st March and 5th April will need to recognise two profit elements:
The standard part
The transitional part
In the example above the profits taxed in 23/24 would consist of
12 months period ending 31st September 2023 (the standard part) plus
Profits from 1st October 2023 to 5th April 2024 (the transitional part)
If a business has any “overlap profits” these will be deducted in the transitional year 2023/24.
As additional profits will be taxed in the year of transition, HMRC have introduced a
spreading rule which will allow for transition profits (after the offset of overlap relief) to be
spread over five tax years.
If your accounting period end is not between 31st March and the 5th April then please get in
touch with us to discuss the best option for your business ahead of these changes.