HMRC’s New Basis Period Reform

30 August 2023

Will you need to report profits differently on your Self Assessment Tax Return?

HMRC will be changing the time frames in which sole trader and partnership businesses use to calculate their taxable profits. Previously, the self employed could report profits according to their own business accounting year end date. However, going forwards if a business accounting year end does not finish on or between 31^st March – 5^th April, in line with the UK tax year (5^th April – 6^th April) the profits will need to be reported differently on the Self Assessment tax return.

Starting from tax year 23/24, known as the transitional year, the new basis period reform will apply, meaning an affected business will need to report profit up to the UK tax year end (5^th April) regardless of when it's own business accounting year ends. For example, if your accounting year end is 31^st December, you will need to report profits from 1^st January 2023 up to 5^th April 2024.

This could mean that more than 1 year of profits may need to be reported, therefore may need to be apportioned between the 2 accounting periods (needing 2 sets of accounts). Any excess from over a years worth of profit will be known as the ‘transition profit’. This can be reduced by Overlap relief, allowing any remaining profit to be spread over future years but only up until tax year 27/28.

It's worth noting that if your business accounting year end is within 31^st March – 4^th April you may treat this profit as if it ends on 5^th April.

To conclude, in the 24/25 tax year, a businesses income tax liability will be calculated based on the profit during the tax year only, not it's own accounting period. If businesses want to continue to use their own accounting end (not the same as the UK tax year), they will need to make apportionment calculations every year when calculating the taxable profits.

Utilising a Bookkeeper to estimate and calculate profit for your self assessment tax return could save you time and money, especially if your current year end does not match the UK tax year. Get in touch to see how our bookkeeping services could help you and your business, email us at admin@booksandbusiness.co.uk

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Homebuyers in Stamp Duty Sprint Before April Hike

by PH186232 • 20 February 2025

With the 1st April deadline looming, its reported that 550,000 homebuyers are racing to complete purchases before stamp duty jumps back to its 2022 levels. We have read that sales awaiting completion are up 25% from last year, with an average five-month wait putting pressure on buyers to beat the deadline. Currently, first-time buyers pay no stamp duty on homes up to £425,000 when purchasing a property worth up to £625,000, but from 1 st April, that drops to £300,000. The upper limit will also fall from £625,000 to £500,000. It's not just the first-time buyers taking a hit, currently stamp duty is only owed on amounts over £250,000, however from 1 st April, only the first £125,000 will be exempt. Despite the cost increase, it looks like most buyers are still pressing ahead, with some even renegotiating offers to offset the hike. According to our research, regardless of the impending cost increases, property experts such as Rightmove are predicting the demand to stay strong; especially if interest rates continue to fall. With mortgage rates already dipping below 4%, we believe buyers remain hopeful for a more affordable market ahead.