Basis period change for the self employed

bob9900

Hi everyone,

I'm hoping someone clued up on tax for the self employed can confirm something for me?

As part of making tax digital the government will require everyone to change their accounting year so it runs from the 6th April 2024.
Most people already do this, but many , like myself use a different date, in my case my accounting period is from May.
In order to bring everyone onto the same start date they will be extending the 22/23 tax year until 2024.
So in my case it will run from May 22 until April 24, a 23 month period.
As I understand it, the first 12 months (basis period) will be treated normally for tax/Nics etc.  but on the 11 month transition period you will have the choice to pay the tax on the profit straight away or split the profit over the next 5 years and be taxed on it in those years.

However there is no mention of your personal tax allowance (£12570) being taken into account for the transition year (11 months) meaning your all your profit will be taxed!
Have I got this correct? if so, it is a massive tax grab! 



 

Jeremy535897

There is no requirement to change your accounting date, but you will have to use two periods of account to calculate your taxable profits if you don't. More detail here, including overlap relief, which is how the extra taxation can be mitigated to a certain extent:
https://www.evelyn.com/insights-and-events/insights/an-update-from-hmrc-on-basis-period-reform/

PMOS

This is also doing my head in. I will also have an additional 11 months tax liability. Have you found any reliable information about whether any allowances are applied? It's also very difficult to find any up to date clarification regarding calculating transitional overlap relief.

Pennywise

PMOS said:

This is also doing my head in. I will also have an additional 11 months tax liability. Have you found any reliable information about whether any allowances are applied? It's also very difficult to find any up to date clarification regarding calculating transitional overlap relief.

You get relief in the form of the overlap relief, i.e. the 11 months which were taxed twice when you started the business years ago, will come back in as a credit against the extra 11 months being taxed in the next tax year.  But you only get one year's worth of tax free personal allowance per tax year.