Last updated: 13 Nov 2023 02:00 Posted in:
Tax experts are concerned that the self-employed are not aware of an HMRC rule change on reporting profits, according to the Financial Times.
The Basis Period Reform changes will affect 528,000 sole traders and partnerships whose accounting years don’t end on 5 April or 31 March. From April 2024, they will have to report their taxable profits to HMRC up until 5 April, even if their accounting year ends at a different time.
The Financial Times said that the change has not been widely publicised, so businesses without tax advisors may simply not know of the new rule.
The idea is that businesses are transitioning in the 2023/24 tax year – and the government will be charging more than 12 months’ worth of profit. That means that you will need to report profit from the day after your accounting year end in 2022/23 up to 5 April 2024.
Those affected by the change can lessen the impact by claiming any ‘Overlap Relief’ that they may be entitled to. This is for overlap profits, also known as transition profit. Those affected will be able to spread transition profit over time, up to the 2027/28 tax year.
About a third of partnerships are believed to be affected, says the consultation document on the change. It will also affect around 7% of sole traders.
HMRC said that the changes would make sure that profits are only taxed once: “This reform will simplify the current complex and confusing basis period rules with a single, consistent basis for all businesses,” it said. “It is a revenue-neutral measure and the Office for Budget Responsibility said the idea that is raises tax is a fiscal illusion.”
“This reform will simplify the current complex and confusing basis period rules with a single, consistent basis for all businesses. It is a revenue-neutral measure and the Office for Budget Responsibility said the idea that is raises tax is a fiscal illusion.”
HMRC