Most unincorporated businesses that do not have a 31 March or 5 April year-end should be considering changing their accounting date before 2024/25, when the new ‘tax year’ basis of assessing profits will be in place. If they do not make such a change, their future tax returns are going to require the apportionment of profits from two different accounting periods, probably with estimated figures (that will require subsequent adjustment) being used from the latter period.
2023/24 is a transition year, where potentially up to 23 months’ profits (if the current year-end date is 30 April) may be assessable. To mitigate the possibly significant extra tax liability that could result in the year, various special rules apply, including the spreading of these additional ‘transition profits’ over five years.
For those affected by the change, there is much to ponder before the new rules come in, including:
- Whether to change accounting date
- In which tax year to change accounting date
- The methodology of changing accounting date (one long period of account or two separate periods, one of 12 months and a shorter one)
- The timing of any capital expenditure and how this will impact on the profits assessable
- Budgeting for the extra tax liabilities that the new rules will produce in the transition year
- Recognising that, going forward, there will be a smaller delay between profits being earned and the tax on those profits being due.
If your unincorporated business does not currently have a 31 March or 5 April year-end, make sure you discuss these issues with us. Although the new rules may still seem some way off, there is lots of planning to do in advance of the changes coming in.
