In preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment the basis period rules for unincorporated businesses are being abolished. Instead, unincorporated businesses will be assessed on the profits actually earned in the tax year.
The new rules take effect from 2024/25, with 2023/24 being a transitional year.
This will affect you if you run an unincorporated business (generally, if you are self-employed) and you currently prepare your accounts to a date other than one between 31 March and 5 April inclusive.
This change could create additional tax liabilities in the tax year that this realignment takes place. HMRC have agreed that these additional liabilities can be spread over five years.
Planning note: There is nothing in the legislation to stop self-employed traders considering this change and moving to an actual basis before the transitional year 2023/24. We recommend that a planning exercise be carried out to clarify the timing of the best-fit option to keep any tax increases to a minimum.
Source: New feed