Year end Tax Review 2023/2024 – Blog 13 – Change in basis of assessment

Tax year 2023/2024 is the transition year from the ‘current year’ basis of assessment (which charges tax on the 12-month accounting period ending in the tax year) to the ‘tax year’ basis of assessment, which will tax the profits actually arising in the tax year. Only businesses that already have a year-end between 31 March and 5 April will be unaffected by the changes.

Under the transition year rules:

• Up to 23 months’ worth of profits will be taxable in 2023/2024, with overlap profit (which usually arises on commencement of trade) being set off against the additional months’ profits

• The extra profits will be spread over five years, to avoid a large additional tax charge arising in one year

• The taxpayer may choose to advance the spread profits into an earlier year if it is beneficial to them (e.g. to use up basic rate band) by election on their tax return

• If businesses do not currently have an accounting date between 31 March and 5 April, they may choose to change their accounting date ahead of the changes, to make calculating taxable profit each year easier

• If they choose not to, they will need to file their return every year using partly provisional figures and, when the final figures are available, amend these when the following year’s tax return is filed

Losses

• Losses made by an unincorporated business for tax year 2023/2024 can be offset against your other income of that year and/or the previous 12 months, subject to a maximum of £50,000 or 25% of your total income for the year, whichever is greater

• An exception is that any losses generated by the offset of overlap profits can be carried back three years

• Unused losses can be carried forward against future profits of the same trade with no limit

• Further options may be available to obtain relief for losses in the early years of a business, or on its cessation

Planning points

• Employing a spouse or child might allow them to utilise their personal allowance and provide a NICs record for state pension purposes. The level of salary paid must be commensurate with the duties performed and must meet National Minimum Wage requirements

• Pension contributions can also be made on behalf of a spouse or child whom you employ, to save tax and NICs. Any contributions made should be reasonable in relation to their working hours and salary.
  • Note that the above two points are equally applicable for companies.

• If you are changing accounting date, discuss with us the optimum way of doing this (i.e. one long period of account or two separate periods), as the tax outcomes can be very different
• Consider carefully the timing of any capital expenditure during 2024 (see Blog 14 in this series).

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.