loss of tax free allowance due to HMRC requiring accounts to run financial not calendar year

Puzzled1701

Question - large tax bill this year, my previous tax returns were based on the calendar year but HMRC required them to be aligned to the financial year April to April for this tax return. Now this is achieved by adding a 1/5th of the earnings for Jan to March 2024 to this years tax return and so on for the next 5 years to allow for the realignment. Now my earnings fall between the £100000 and £125125 bracket were you progressively lose the tax free earnings allowance with increasing earnings. Therefore for this very niche group who previously ran accounts on the calendar year AND have earnings in the bracket were the tax free earning allowance is progressively lost is this not costing them more of their tax free allowance and increasing their tax beyond someone else who has identical earnings but has always run their accounts from April to April?  

Dazed_and_C0nfused

Puzzled1701 said:

Question - large tax bill this year, my previous tax returns were based on the calendar year but HMRC required them to be aligned to the financial year April to April for this tax return. Now this is achieved by adding a 1/5th of the earnings for Jan to March 2024 to this years tax return and so on for the next 5 years to allow for the realignment. Now my earnings fall between the £100000 and £125125 bracket were you progressively lose the tax free earnings allowance with increasing earnings. Therefore for this very niche group who previously ran accounts on the calendar year AND have earnings in the bracket were the tax free earning allowance is progressively lost is this not costing them more of their tax free allowance and increasing their tax beyond someone else who has identical earnings but has always run their accounts from April to April?  

When you became self employed it was your choice of accounting year.

Isn't the 1/5th another choice you have made?

Isn't there an option to include the extra accounting period all in one go this year?  

That might be better than spreading over 5 years.  But that's probably impossible to know for certain as you can't be sure how profitable you will be over such a long period.

[Deleted User]

Puzzled1701 said:

Question - large tax bill this year, my previous tax returns were based on the calendar year but HMRC required them to be aligned to the financial year April to April for this tax return. Now this is achieved by adding a 1/5th of the earnings for Jan to March 2024 to this years tax return and so on for the next 5 years to allow for the realignment. Now my earnings fall between the £100000 and £125125 bracket were you progressively lose the tax free earnings allowance with increasing earnings. Therefore for this very niche group who previously ran accounts on the calendar year AND have earnings in the bracket were the tax free earning allowance is progressively lost is this not costing them more of their tax free allowance and increasing their tax beyond someone else who has identical earnings but has always run their accounts from April to April?  

Have you overlap relief ?

mildew50

I am in the same position as a result of the basis period reform. I have included overlap relief in my calculation which has reduced the transition profit to be taxed because at some point when you became self employed and your financial year did not align to April to April you would have been taxed twice on part of your profit and of course we then have 5 years to pay the additional tax but agree that we have lost part of our annual allowance.
Have you calculated your overlap relief?