This month, HMRC is reaching out to approximately 100,000 self-employed individuals or trading partnerships, whose accounting periods do not conclude between March 31st and April 5th. The communication highlights significant changes regarding how these entities should disclose their accounting details on tax returns, which will affect taxable profits annually. These changes, known as ‘basis period reform’ or ‘reporting on a tax year basis,’ will come into effect from the 2023/24 tax return onwards.
HMRC Letter
HMRC has specifically targeted businesses not aligning their accounts with the end dates of March 31st, April 1st, April 2nd, April 3rd, April 4th, or April 5th, and who handle their tax returns independently.
If you’re self-employed or a partner in a trading partnership and have received this correspondence but typically prepare your business accounts ending between March 31st and April 5th annually, aside from reviewing your overlap relief status (see below), no further action is required.
For those not adhering to accounting periods ending between March 31st and April 5th, it’s crucial to assess how basis period reform will impact you. You may need to consider actions before preparing your 2023/24 self-assessment tax return. For example; altering your accounting period. Since this may be the first you’ve heard of these changes, detailed information is available to assist in understanding. HMRC offers comprehensive guidance on their website.
Key Areas to Consider:
Understanding the new reporting regulations
From the 2024/25 tax year, the new reporting rules mandate reporting accounting information on tax returns on a tax year basis (from April 6th in one year to April 5th the following year). However, the transitional rules may extend the accounting period for your 2023/24 tax return beyond 12 months.
Changing Your Accounting Period
Changing your accounting date is optional under the new basis period reform. However, some small businesses may opt for an accounting period ending between March 31st and April 5th in 2023/24 to simplify tax returns in future years.
Overlap Relief
Overlap relief may reduce your taxable profits if your accounting period doesn’t conclude on April 5th. Claiming all overlap relief on the 2023/24 tax return is imperative; otherwise, it expires. HMRC may be able to provide information on overlap relief based on your prior tax returns. The easiest way to request information about your overlap relief position is to complete a G-Form on GOV.UK, where you will need to log in to your government gateway account.
Adjust the Spread of Additional Profits
Many self-employed individuals and partners in partnerships may encounter additional profits in the 2023/24 tax year due to the new basis period reform. These profits are automatically spread evenly over five tax years (2023/24-2027/28). Further details are available on the HMRC website.
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