Self Employment - Basis Period Reform

mattgod69

Hi all, happy new year!

I have completed my tax return for this year and am about to submit.  My accounts end date was the end of Sept so for this year I have done accounts for Sept 22 to Apr 24.  Going forward the accounts will be Apr to Apr.

I have a couple of questions or observations.  I realise that overlap relief can be entered for the 96/97 tax years (I have estimated this - which is small as the earrings were not that high back then), but as I am being taxed on an 18 month period (with only 12 months personal allowances etc), this effectively means I am paying a lot more tax than I would have done (for the 6 months transitional part)?  Should the personal allowances not have been adjusted to take into account the longer accounting period.... seems a bit unfair to me?!

I know the transitional profit and tax payable can be spread over 5 years, which I guess assists with minimising the additional burden now and could be argued that this means I am holding the money owed to HMRC for longer which is a slight benefit.  However, I know you can pay some or all of this additional tax now, but I am wondering why anyone would do this (unless it is a small amount or for some reasons there was a massive drop in profits in this 18 months period).  At the moment, I have stuck with paying transitional profits over 5 years.

Any thoughts or comments greatly appreciated.

Matt

Jeremy535897

I take it your new year end is 5 April?
You may be able to get your overlap relief figure from HMRC, but there is a 3 week wait so you need to hurry:
https://www.gov.uk/guidance/get-your-overlap-relief-figure
There have always been illogicalities, going back to when the preceding year basis was used, and changed to the current year basis. Nobody has ever been given more personal allowance just because more than 12 months of profit were assessed in one year.

mattgod69

hi Jeremy, well i have done it to the 31st March.... but I think for tax purposes that is the same as the 5th April.... 

I have estimated the overlap relief figure (my accountant gave it to me).  Ill submit using this, i can correct it later if need be.

point taken about the PA, but its still not really fair.  They are forcing me to change and have a longer period without any allowances etc for this period.

Jeremy535897

That's why you get the spreading option. 31 March is fine.