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Is Your Tax Period Changing?

From tax year 2024/25, all unincorporated businesses will be taxed on the profits they generate during the tax year (6 April to 5 April). This applies to sole traders and partnerships (including Limited Liability Partnerships), regardless of the year-end currently applied by the business.

If your accounting year-end is 31 March or 5 April, there will be minimal or no impact on your business.

Why is the tax period changing?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is expected to start from 2026. This initiative requires online, quarterly updates about business income and expenses to be submitted to HMRC.

At the end of the tax year, you’ll need to finalise your business income by completing an end of period statement (EOPS) for each source of income, along with a final declaration that replaces the current Self Assessment tax return. 

The deadlines involved will be the same for everyone. Reforming the tax period now brings all impacted businesses in line with the planned changes, ready for the introduction of MTD ITSA.

How does the new tax affect my business?

During the current tax year (2023/24) your business needs to change from the ‘old’ rules to the ‘new’ accounting period of 6 April to 5 April. This means reporting figures for two accounting periods with your 2023/24 tax return.

For this transition year, you must submit:

  • a calculation of profits for your current accounting year, and
  • the profits earned from the day after your year end to 5 April 2024 (the transition period).

This means that many businesses will face a higher tax liability than expected. With this in mind, payment of the tax liability generated from transitional period profits may be spread over five tax years, starting with 2023/24. This should ease cash flow by ensuring the extra tax due on these profits is not paid entirely in current tax year (although early payment is possible if preferred).

What happens now?

In most cases, it is beneficial to change the start of your accounting year to 6 April during the current tax year. This ensures that extra profits impacting your tax liability will be ‘transition profits’ with the option of spreading payments. 

Key points to consider:

  1. Now is a great time to discuss this with your accountant and plan the changes needed
  2. Cashflow may be affected as extra tax payments may arise within the transition year, plus payments may be required sooner than in your current accounting year.
  3. There are some circumstances which may result in the change to tax year being more beneficial during 2022/23 instead of the current year (if profits are unusually low, for example) – although it should be noted that tax liability for 2022/23 does not have the five-year payment spreading option.

Find out more

The Hargreaves Owen team guides clients through the new requirements. Our friendly tax experts advise you on when to change your accounting date, minimising your tax liability and cashflow impact. We’ll help your accounting year transition to be straightforward, compliant and jargon-free.  Let’s discuss the best option for you.

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