CHARTERED ACCOUNTANTS URGE TRADERS TO PREPARE FOR NEW BASIS PERIOD REFORM
With the Finance Bill 2021/22 receiving Royal Assent last month, it is all systems go for Basis Period Reform for unincorporated trading businesses from tax year 2024/25. Chartered Accountants Wylie & Bisset are stressing the importance in planning for this and, more importantly, the impact of the transitional year 2023/24.
Basis Period Reform is intended to remove the basis of taxing trading profits for sole traders and partners away from the accounting period ending in the tax year to a strict tax year basis.
A sole trader with a traditional 30th April accounting period who would have been taxed on the year to 30th April 2024 in tax year 2024/25 will now be taxed in that tax year on part of the accounting profits for 30th April 2024 plus part of the accounting profits for 30th April 2025.
Wylie & Bisset’s tax partner Catherine McManus (pictured above) said: “While the change is still taxation on 12 months of income in 2024/25, the sting in the tail is the transitional year of 2023/24 when the same trader will be taxed on 23 months of income, being the accounting period to 30th April 2023 plus the 11 months to 5 April 2024.
HMRC will allow relief against this burden by the use of overlap profits and spreading of the transitional period adjustment over five years, but this will provide little comfort to those with rising profits and low overlap amounts.”
Ms McManus added: “I would urge taxpayers with unincorporated businesses to start thinking now about what this change will mean for them. Some may be considering incorporation as an alternative structure, but the key to that is planning.
Taxpayers should seek professional advice as to whether that will suit them in the longer term, taking into consideration profitability and their income requirements.
Some may want to consider changing their accounting date to avoid the ongoing administrative burden of splitting accounts between tax years. This will likely be most beneficial in 2023/24 itself. It would be unwise for traders not to review all factors in the run up to these changes.”
