New legislation that affects how sole traders and partnerships are taxed is due to come into play on April 6 2024.
It means that businesses will be taxed on profits generated in a fiscal year and not those aligned to the business’s accounting year-end.
When will this take effect?
We are coming to the end of the transitional tax year 2023/2024 but if you are yet to look into this, there is still time.
The issue comes when you need to submit your tax return for the year to April 5 2024 (any time up until January 31 2025).
Currently, you can choose any accounting year end you wish. For the tax year ended April 5 2023 this could be anywhere between April 6 2022 and April 5 2023.
For profits generated in the transitional year, regardless of what your accounting year end is, you will be taxed on the profits you generated in the year ending April 5 2024.
Do I have to change my accounting year-end?
No, but if you decide to keep a year-end other than March 31-April 5, when you get to the date for submitting your tax return and you haven’t done the accounts for the second part of that period, you will need to put an estimated profit on that tax return and then go back and correct it once you know the actual profit.
Estimated accounts can mean more hassle and expense to effectively do the tax return twice and there is more scope for underpaying or overpaying tax.
Therefore, if you’ve got a year-end late in the year, October or after, for simplicity, changing your year end to March 31 should be considered.
Why you might keep your accounting year-end
If a particular year-end suits your business commercially and practically, you don’t have to change your year-end.
For example, a beef and sheep farmer may be in the middle of lambing on March 31 and would not want the hassle of doing a stock count on that date.
Meanwhile, those in hospitality may not wish to have a March 31 year end due to where Easter falls, as two Easter weekends in the same tax year could have a huge impact on profits.
How soon do I need to decide whether to change my accounting year-end?
Your year-end and the figures need to be looked at in detail before the next tax filing season, so you need to be looking at it as soon as possible.
The sooner, the better. If you think you might change your accounting date to March 31, but you’re not sure, it would be wise to get some stock figures up to March 31, just so you have them if you do change, and they are needed.
Either way this will give you more flexibility.
For more information and advice about the change in basis period please contact 01768222030 or email help@armstrongwatson.co.uk
