While filing for the 2022/2023 tax year, Short and Sons Accountants noticed that many taxpayers' accounting years finish before April 5th. Although that was not an issue for 2022/2023, changes in 2023/2024 will cause such people to have their year-end date changed and their tax for future years altered.
What's the problem?
In short, HMRC wants sole traders and partnerships whose accounting year ends between the 6th of April and the 30th of March to have their year-end on the 5th of April. They will change how tax returns are filled in for the 2023/2024 accounting year. It's worth clarifying (before explaining how it all works) that changing accounting dates will not be required by companies or those whose year currently ends in the 6 days between the 31st of March and the 5th of April.
What does this mean for me?
At Short and Sons, we want to make the transition period easy for you. To do so, we will require your financial information up until your original year-end as usual, and then we will also need the information from your year-end date up until 05 April 2024, to be able to change your accounting date. Here's an example:
Your accounting period for 2023/2024 was going to be from 01 October 2022 to 30 September 2023 as usual.
Short and Sons will require that period's information as we do every year.
However, we will now separately need your information from 01 October 2023 to 05 April 2024 in order to be able to change your accounting date.
Will I be taxed for that whole period?
Having followed the example, Short and Sons will hopefully now have all the necessary information to complete your 2023/2024 tax return and change your accounting dates. But as you can imagine, there will be more tax to pay than usual since you're accounting for more than one year's worth of information. To combat this, the "extra" profit from your old year-end up until 05 April 2024, will be spread across 5 years. Here's how it would look with the dates from the last example:
According to the information you sent us, the profit for your original period from 01 October 2022 to 30 September 2023 is £42,000.
And according to the other information you sent, from 01 October 2023 to 05 April 2024, your profit for that period is £16,000.
The £16000 profit is divided equally and assessed over the next 5 tax years at £3200 a year (£16000 divided by 5)
Therefore your profit for the 2023/2024 financial year would be £45200 (£42000 plus £3200)
Anything else I should know?
It's worth noting that if you have changed your reporting date already within the last 6 years and now have to do it again, you may have unused overlap relief to claim, so ensure you tell us about that so we can reduce your tax bill.
Also, the "transition profit" is spread evenly across 5 years by default, but you can choose to use more in specific years. This can be a useful tool for reducing future tax bills. For example, if you earn under a threshold or allowance in one year, it may be worth paying more transition tax during that year rather than when you earn over a certain threshold or allowance. Lastly, as always, if you have any queries, please don't hesitate to get in touch.
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