When you think of an accountant, you may envision someone you only need once a year to fulfil your tax obligations. However, at HQ Accountancy, we are here to challenge that perception and revolutionise the way you approach UK accountancy in the 21st century. Our team of professional bodies’ mission is to provide you with a comprehensive range of premium services at an affordable price.
We understand the challenges faced by business owners who constantly juggle invoices, unpaid client bills, and incoming payments, which is why we offer year-round support to ensure you always have a clear financial picture. Let’s delve into the recent changes in the UK accountancy landscape and how they might affect you.
Key Changes to Income Reporting Rules for Self-Employed and Trading Partnerships
The New Tax Year Basis
The UK accounting landscape is evolving, introducing a concept known as “New Tax Year Basis” or “Basis Period Reform.” If you are self-employed or part of a trading partnership and your business accounting year-end does not align with the tax year (not on or between 31 March and 5 April), these changes may affect you. If you are an employee or a company director, you can rest assured that these changes won’t impact you.
How to Report Business Profits Under the New UK Tax Year Basis Rules from April 2023
Until 5 April 2023, accountants followed the basic period reporting rules, which required reporting profits according to the business accounting year-end date within the relevant tax year (between 31 March to 5 April the following year). However, starting from 6 April 2023, the new tax year basis comes into play.
This means you’ll need to report profits up to the tax year’s end, regardless of your accounting year-end date. If your accounting year-end doesn’t fall between 31 March and 5 April, your profits may need to be apportioned between accounting periods.
The 2023 to 2024 Transition Year: How to Report Profits and Use Overlap Relief
The tax year 2023 to 2024 is referred to as the “transition year.” In your Self-assessment tax return for this year, you’ll need to report profit from the day after your accounting year-end in 2022 to 2023, up to 5 April 2024. This may require you to report profits covering more than one year and possibly apportion profits from two sets of accounts.
Any excess profit will be considered “transition profit,” which can be reduced by Overlap Relief. The remaining profit spread over the subsequent years, up to the tax year 2027 to 2028.
Business Accounting Year-End Between 31 March and 4 April
For those with business accounting year-ends on or between 31 March and 4 April, you can treat your accounting year as ending on 5 April. This simplifies the reporting process, eliminating the need for apportionment for the five days after 31 March.
How to Report Business Profits for the 2024 to 2025 Tax Year
To report profits earned during the tax year 2024 to 2025 (6 April to the following 5 April), you’ll need to consider your accounting year-end date. If it falls between 31 March and 5 April, you can report the figures from those accounts as usual.
Otherwise, you’ll need to report profits from two sets of accounts – from 6 April to your business account year-end date and from the start of your new business year to 5 April the following year. Apportioning profits can be based on the number of days, months, or other reasonable methods, depending on your specific circumstances.
How to Estimate and Submit Provisional Profit Figures on Your Self-Assessment Tax Return
In cases where you don’t know your profit for the entire tax year due to pending business accounts, you can estimate the profit and provide “provisional figures” on your return. It’s crucial to amend your return with the correct figures once they become available.
Navigating the evolving landscape of UK accountancy may seem daunting, but at HQ Accountancy, we’re here to guide you through every step. Our commitment to providing year-round support and modernising the way you manage your finances ensures that you’re always in control. Embrace these changes, and let’s pave the path to your financial success in the 21st century together.
