Self-employed and unincorporated businesses (including rental businesses) have faced a series of changes in recent years and the introduction of Making Tax Digital (“MTD”) from 6th April 2026 will result in additional quarterly reporting obligations on those businesses with turnover in excess of £50,000 and will enable a more regular consideration of the tax position whilst not affecting the timing of the payment of tax liabilities.
“Whilst MTD will create additional obligations, this has the potential to enable businesses to understand their financial and cashflow position more regularly and to work with advisers to proactively plan to mitigate the tax exposure through in year planning.“
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More information about Making Tax Digital can be found on our website using this link Making Tax Digital (MTD) for Self-Assessment | Menzies LLP and our private client and outsourcing teams are working to support clients with the transition to MTD.
Transitional profits
Changes introduced on 6th April 2024 mean that self-employed and unincorporated businesses are now taxed on profits made within the tax year irrespective of when their accounting year ends with the result that most new businesses will opt for a 31 March or 5th April year end for simplicity given this change and the introduction of MTD.
For those businesses who opted to retain an alternative year end for commercial reasons, the year to 5th April 2024 represented a transitional period where these businesses would be taxed on the profits for the 12 months to their accounting year end plus the profits between the year end and 5th April.
Businesses and individual partners within businesses were able to elect to spread the additional profit as a result of the transition over a period of up to 5 years whilst the business continued to trade and the table below sets out the key impact of the transitional rules.
A summary of the impacts is set out below:
| TRANSITIONAL RULES WILL | TRANSITIONAL RULES WILL NOT RESULT IN |
| 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 |
