UK: The new tax year basis 2023/24 - Income Tax Self-Assessment

This reform affects individuals who are self-employed, including partners in trading partnerships, if their accounting periods are not aligned to the tax year (dates from 31 March to 5 April inclusive are treated as aligned to the tax year for this purpose).

The majority of taxpayers in the UK have a 5 April or 31 March year end and will not be affected by the new rules.

The sole traders and partnerships that do not use 5 April or 31 March as their accounting period end date will calculate their profits under the new rules.

Transition year – 2023/24

Businesses will move onto the new way of calculating taxable profits from their trade, vocation or profession from the 2023/24 tax year.

Where the accounting period is not 5 April or 31 March, businesses will be taxed on profits of the whole of the accounting period to the date ending in that year plus the profits for that period from the end of the accounting date ending in the year to the following 5 April 2024 (transition part) less any overlap profits brought forward.

For example, If Mr. Dean draws up his accounts to 31 December each year, for 2023/24 he will be taxed on his profits from 1 January 2023 to 5 April 2024.

The change means that the business profit or loss for a tax year is the profit or loss arising in the tax year itself, regardless of the accounting date.

Overlap profits is a term used to describe a part of a basis period that was taxed twice when the business first started. Overlap profits will be used to reduce the profits in the transition year. Any remaining profit can be spread over 5 years to reduce the tax burden on the businesses.

From 2023 to 2024 onwards, some businesses may have to use provisional figures on their returns. HMRC will relax its guidance to give businesses the normal amendment time limit to submit their final figures provided they submitted provisional figures on their tax return.

In addition, HMRC are enhancing their range of services by creating an internal tool and system that will enable them to collect this date more efficiently. They are also expanding their team that deals with overlap relief requests meaning that if a business requires confirmation of its overlap profits, they can submit a request to HMRC and more of these requests can be dealt with on a timely basis. Taxpayers will be submitting overlap relief requests via post, telephone and online. No specific date has been given on when exactly the online form will be released but we can expect this, and additional support in Summer 2023.

HMRC have confirmed that overlap relief information can only be provided, if HMRC have a record of these figures from previously submitted tax returns. In the absence of this information, HMRC will not be able to provide any historic data.

HMRC have provided guidance on the information the business must provide via the overlap relief requests so that HMRC can provide taxpayers with the correct figures.

The request should include the following information:

· Name of business

· National Insurance number or Unique Taxpayer Reference

· Taxpayer name

· Description of business

· Whether this business is self-employment or part of a partnership

· If the business is part of a partnership, the partnership’s Unique Taxpayer

· Reference date of commencement as a partner in partnership

· Date of commencement of the self-employment business

· Most recent period of account or basis period the business used

Tax year 2024/25 and future years

For businesses, where accounting years are different from the year end 31 March or 5 April, the taxable profits will be calculated by apportioning the profits for the two accounting periods that straddle the tax year in question.

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Reference/ Citation

https://www.gov.uk/government/publications/employer-bulletin-april-2023/april-2023-issue-of-theemployer-bulletin#income-tax-self-assessment