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From the tax year 2024/25 unincorporated businesses will be taxed on their profits arising in the tax year itself, regardless of their accounting date. If your accounts run to a date other than 31 March or 1 to 5 April, you will have to apportion, pro rata, the profits of two accounting periods to arrive at your taxable profit.
Individuals with an accounting date late in the tax year are likely to have to estimate their profits for the later accounting period and amend their tax return afterwards. An initial under estimate may result in late payment interest. Changing your accounting date to 31 March or 5 April would avoid this problem.
To move to the tax year basis, 2023/24 is a transitional year. The taxable profits for 2023/24 will consist of two parts:
Any unused overlap relief that arose in the past will be deducted from the transitional part. The remaining transitional profits will then be spread over the five tax years from 2023/24 to 2027/28.
These profits are normally spread evenly over the five years, but a taxpayer can choose to accelerate them. For example a basic rate taxpayer might be able to limit taxation at higher rates in later years by bringing profits forward. Helpfully, transitional profits are not included in calculating the High Income Child Benefit Charge or the income limits above which the pension contributions annual allowance taper kicks in.
