25th April 2022 Posted by - Alexander Accountancy
The basis period reforms will change the way trading income is allocated to tax years. The reforms will change the basis period from a ‘current year basis’ to a ‘tax year basis’. Under the current rules there can be overlapping basis periods, which charge tax on profits twice and generate corresponding ‘overlap relief’ which is usually given on cessation of the business. The new method of using a ‘tax year basis’ will remove the basis period rules and prevent the creation of further overlap relief.
The new rules are set to come into effect in the 2024-25 tax year with 2023-24 being a transitional year. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.
The changes will affect businesses which draw up annual accounts to a date different to 31 March or 5 April (mainly seasonal businesses and large partnerships), and businesses that commence from 6 April 2024. Affected businesses should ensure they are prepared for the changes as there may be implications on cashflow by accelerating profits into an earlier tax year as well as increased compliance costs.
Source: HM Revenue & Customs Tue, 19 Apr 2022