In the recent Budget, Chancellor Sunak announced major changes to self-employed and partnership taxation from 6th April 2024 which will lead to bigger tax bills for many self-employed taxpayers in the short run.
Under the reforms, tax will be assessed on profits arising in the tax year, regardless of the business accounting date. This replaces the accounting year basis and means that any taxpayer whose year end is not 5 April will pay tax on profits for more than a 12-month period in the tax year 2023-24.
Says Julia Gallagher, Curo’s head of tax “The move to a new tax basis period is a welcome announcement, with several high-profile professional bodies having lobbied for it for years. Basing tax on profits generated in a tax year removes the need for ‘double taxation’ and complex overlap relief. However, affected taxpayers whose accounting year doesn’t align with the tax year should be prepared for an increased tax bill as they transition into the new rules.”
Overlap relief
If there is any accrued overlap, under current proposals this can be used in the transition period.
Impact on partnerships
Partnership firms that currently do not make up their accounts to either 5 April or 31 March should consider the impact of the basis period reform on their cash flow position. This is likely to involve complex calculations for larger firms with more partners, especially where there are leaver and joiners in the periods affected.
Says Julia “We welcome the one-year deferral in bringing in the new tax basis rules and stress the importance of preparing for the changes ahead, including calculations, forecasting and ensuring any higher than usual liabilities can be met from the cash flow perspective. Although the government describes the reforms as ‘fiscally neutral’, the reforms will still feel like a short term hit on liquidity.”
How we can help
Our experienced tax team can talk you through the Tax basis period reform changes and explain your options and obligations. Please contact [email protected] to discuss how Curo can help you and ensure you achieve a tax optimal position.