Taxable Profits for 2023/24

The rules that govern which profits are taxable for a particular tax year are changing. If you are a sole trader or an individual partner in a partnership, from 2024/25 you will be taxed on the profits for the tax year regardless of the date to which you prepare your accounts. You will no longer be taxed on the profits for the accounting period ending in the tax year.

To move from the old basis to the new basis, the 2023/24 tax year is a transitional year. Unless you prepare your accounts to 31 March, 5 April or a date in between (all deemed to be equivalent to the tax year), you will be assessed on more than 12 months’ profits for 2023/24. The profits for the transition year are those from the end of the accounting period assessed in 2022/23 to 5 April 2024. If you have overlap profits from the early years of a business or when you changed your accounting date, relief is given in 2023/24 by deducting these profits.

To prevent an unusually high tax bill in 2023/24, the profits relating to the period from the accounting date to 5 April 2024, less any overlap relief, are taxed over five years, from 2023/24 to 2027/28 inclusive, unless you elect for this treatment not to apply. As you may have higher bills for 2023/24 to 2027/28 as a result of the transition you may need to plan ahead and put money aside to ensure that you can pay what you owe.

We can explain what the reforms mean for you and the impact on your taxable profits for 2023/24.

Tax year basis from 2024/25

From 2024/25 unincorporated businesses are taxed on the profits corresponding to the tax year. This means that for 2024/25, the profits that are taxed are those for the period from 6 April 2024 to 5 April 2025, regardless of the date to which you prepare your accounts. A year end of 31 March is treated as being equivalent to the tax year.

If your accounting date is other than 31 March or 5 April (or a date in between) you will need to apportion the profits for two tax years to arrive at the profit for the tax year. To make life easier, you may wish to change your accounting date to 31 March.

We can explain what the new tax year basis means for you and help you decide if it is beneficial to change you accounting date. Contact us at enquiries@ardury.co.uk to discuss further.