Tax Year Changes For Self Employed

The 23/24 tax year is well underway, and there's tax year changes to the tax reporting periods which seems to have been overlooked by most. This change could effect you if you’re self-employed or in a partnership. If your business’s financial year end doesn’t match up with the standard tax year end, which is between the 31st March to 5th April, it’s important to take some time to sit up and take notice as the tax year changes for self employed has changed. This article aims to steer you through the intricacies of the new tax year basis. Our goal is to provide you with the knowledge and understanding needed to meet these changes head on and not get caught out.

Understanding the New Tax Year Changes

Who is Affected by the tax Year Changes?

You will be effected by this shift if:

1. You're self-employed or in a partnership and;
2. Your business accounting year end is outside the 31 March to 5 April window.

If neither of these apply, breathe easy! Your reporting process remains unchanged.

Changes in Reporting Profit

The Old vs. The New:

• Until 5 April 2023, profits were reported based on your business's accounting year within the tax year.
• From 6 April 2023, the rules have changes. Profits must be reported up to the tax year end, regardless of when your accounting year concludes.

If your accounting year end is not on or between 31 March to 5 April, your profits may need to be apportioned. This is how you'll calculate your profits for a tax year by dividing profits from different accounting periods.

The 2023 to 2024 Tax Year: A Transition Phase

This year is unique, termed as the ‘transition year’. Here’s the breakdown:

• Report profits from the day after your 2022-2023 accounting year end up to 5 April 2024.
• This could mean reporting profits spanning over a year and apportioning two sets of accounts.

Lets look at an example. If your accounting year ended on 31 December 2022, you'll report from 1 January 2023 to 5 April 2024.

Dealing with Transition Profit

Excess profit over 12 months is labelled ‘transition profit’. It can be reduced by Overlap Relief, and any remaining profit is spread over the years up to 2027-2028. Steps to Follow:

1. Determine your Overlap Relief figure.
2. Calculate your transition profit.
3. Include these in your 2023 to 2024 Self-Assessment tax return.

Special Consideration for Accounting Dates Between 31 March and 4 April

If you're in this category, you can align your accounting year with 5 April, sparing you the hassle of apportioning profits for the extra five days.

Reporting Profit from 5 April 2024 Onwards

Going forward, you'll report profits earned during the specific tax year. For those not aligned with the standard tax year, it means combining profits from two different accounting periods.

Apportioning Profits as a result of the Tax Year Changes:

• Use the number of days or any reasonable and consistent method like weeks or months.
• Remember to adjust for leap years!

Let’s look at an example of how to apportion by days and by months: Daily basis A business operating from 1 October 2025 to 30 September 2026 would calculate taxable profits based on the number of days in each tax period. The calculation for this would be, Profit × the number of days in this period ÷ the number of days in the tax year. Monthly basis A business from 1 January 2026 to 31 December 2027 would use the number of months. The calculation for this would be, Profit × the number of months in this period ÷ the number of months in the tax year.

What If You're Estimating Profits?

Sometimes, you won't have the complete picture when filing your return. In such cases, provide ‘provisional figures’ and amend your return once you have the accurate numbers.

Wrapping Up The Tax Year Changes

Change might seem daunting, but with these guidelines, you're all set to tackle the new tax year basis with confidence. Keep an eye out for further guidance on calculating and reporting your transition profit. Remember, staying informed and prepared is the key to smooth sailing through tax season!