Attention self-employed: get ready for a longer tax year. 

The government has changed the taxation system for self-employed individuals and partners in partnerships, requiring them to pay tax on their trading profits earned during the tax year instead of the accounting year. 

The tax year 2023/24 will act as a transitional year whereby the old basis period rules will be abolished and replaced with the new tax year basis.  

Taking the 30 April year end as an example, in 2023/24 the default position will be that your taxable profits will be as follows: 

  1. the “normal” calculation of profits for the accounting year ending 30 April 2023, plus 
  1. The ‘transitional part’ which includes your profits from 1 May 2023 to 5 April 2024  

To overcome the tax liability that will occur from the transitional changes, there are two measures to reduce the impact; 

  1. Any overlap relief from prior tax years can be deducted from profits; and 
  1. The ‘transitional part’ profits can be spread over a period of up to five tax years  

It is worth noting that the following four tax years, the personal allowance and higher rate threshold are frozen. While this change may sound daunting, it presents planning opportunities, such as making a larger pension contribution.  

Get in Touch

Talk to Emily to ensure you’re prepared for the implications and ready for a higher tax bill come January 2025.