Tax year basis reform: Should I change my year-end?

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 to 24 and consider whether it is worth changing your accounting period.

The Finance Bill was published on L-Day (20 July 2021) and outlined important changes to tax basis periods.

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 must 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.

Should I change my year-end?

To sum up, it is worth considering changing your 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.

If you make the change in the transition period, you could avoid the creation of profits overlap and get access to spreading relief.

Despite the obvious benefits of this change, simplifying certain practical and technical matters for being one, a business that doesn’t make their accounts up to 31 March or 5 April should consider the impact this will have on their cash flow, especially in the transitional year.

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 to 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.