In the first blog of this series on tax year basis reforms, we will be discussing the new rules that will affect how unincorporated businesses are taxed from 2023/24.
The move away from the “current year” basis to a “tax year” basis is part of the Government’s wider intent to implement a digital tax system.
Whilst the changes are not due to come into effect until 6 April 2024 (the tax year 2024/25), businesses need to be clear on what these changes mean.
The tax year 2023/24 is a transitional year and as such unincorporated businesses should start reviewing the effects of this reform now.
Are there practical impacts of this reform?
Whilst the longer-term effects cannot be quantified at the moment, in the short term there will be an overall impact on a business’s cash flow.
This is particularly true for firms that do not make their accounts up to 31 March or 5 April.
Why? Because in the transitional year 2023/24 partners could see the amount of tax they pay on a larger amount of profit increase significantly.
Should I change my year-end?
Businesses are being encouraged to consider changing their year-end.
If your accounting date isn’t 31 March, it could be beneficial to change this ahead of the change to a “tax year” basis. This can either be done in 2022/23 or the upcoming 2023/24 transition period.
Changing your year-end to reflect the upcoming reform before it is implemented could set you and your business in good stead for the 2024/25 tax year and beyond, but you should seek advice beforehand.
The next blog in this series covers how these changes will affect you and your business.
Should you need any advice on how these rules could affect you or your business please contact us.