Tax Year Basis for Unincorporated Businesses

From the tax year 2024/2025 unincorporated businesses will be required to calculate their profits on the new ‘tax year’ basis, i.e. those profits that arise between 6 April and 5 April.

Many businesses are considering changing their accounting period end to align with the tax year.  Those that choose not to will need to apportion their profits and may need to estimate some of the figures in order to meet the annual 31 January Tax Return filing deadline.

For example, a business with a 31 December accounting year end would need to include nine months of the profits from the year ended 31 December 2024 and three months from the year ended 31 December 2025 in 2024/2025. The results for the year ended 31 December 2025 are unlikely to have been finalised by the 2024/2025 Tax Return filing deadline of 31 January 2026. The business will therefore require to include an estimate of the profit/loss for this three month period in the 2024/2025 Tax Return submission.

HMRC’s guidance on provisional figures currently requires businesses to make amendments to provide final figures ‘without delay’. HMRC have now announced that this condition will be relaxed before the start of the basis period transition year in 2023/2024.

Earlier this year HMRC consulted on a number of options on how to deal with provisional figures. The UK Government have decided that they will allow businesses to amend provisional figures by the normal time limit for making amendments. For the 2024/2025 tax year this will be on or before 31 January 2027, the same date as the final filing deadline for the 2025/2026 Tax Return.

In order to avoid this additional complexity, unincorporated businesses should consider changing their accounting year end date to 31 March or 5 April. The timing of the change is critical, and it will generally be better to do this to 31 March or 5 April 2024 due to the ability to spread additional profits arising over 5 tax years.

Please contact us to discuss the full implications of changing your business year end.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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