Self-employed & Unincorporated Businesses

A major change in taxation is being introduced from 6 April 2024 whereby self-employed and unincorporated businesses will be taxed on the profits made within the tax year irrespective of when their accounting year ends. This will impact businesses who do not have a 31 March or 5 April year end who, previously, have only been taxed on the profits of the accounting year which ended within the tax year.

This change in basis period results in a significant impact for the tax year to 5 April 2024 as businesses without a 31 March (or 5 April) year end will be taxed on more than 12 months profit being the profits to their current accounting year end plus the profit between that date and 5 April. To illustrate this, an unincorporated business with a 30 April year end would be exposed to tax on 23 months of profit.

For profitable businesses this will result in additional taxable income for 2023/24 and there are two ways that this can be managed:

  1. Where an individual has unused overlap relief available from the start of their trade (or a previous year end change) this can be offset against the profits of the additional period; and
  1. Businesses can elect to spread the additional profits over 5 years.

Most individuals and unincorporated businesses will elect to spread the profits to manage the cashflow impact but current and future levels of profitability should be considered before this to manage the effective tax rate.

Your #BrighterThinking next steps

“Businesses should consider whether it is appropriate to change year end to align with the year end but should only do this in the 2023/24 tax year as the entitlement to spread the profits over 5 years will only apply for the 2023/24 tax year.”

Andrew England – Corporate Tax Partner

A summary of the impacts is set out below:

Result in a restriction of personal allowance
where adjusted income exceeds £100,000
An individual being exposed to the high
income child benefit charge where profits to
normal accounting date are below £50,000
Count as relevant net earnings for pension
contribution purposes
A tapering of the pension annual allowances
where this results in taxable income
exceeding £240,000
Allow transitional losses to be carried back up
to 3 years
Allow super profits generated by the
recognition of an additional period to be
spread over 5 years

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