Sole Trader - Aligning Year End

Sole Trader - Aligning Year End

Sole Traders - Basis Period Reform – Consultation

In the most recent budget HMRC have confirmed that the way in which sole traders are taxed will change. Full details can be found here.

Currently, a sole trade business is able to decide the year it makes up its annual accounts when the business begins, which will not necessarily be in line with the tax year. Where it is a date other than 31 March or 5 April, there are special rules in place for the first year or so of trading which may create an overlap profit (an amount that is taxed twice in the beginning and is tax relievable in the final year usually).

The new policy however, imposes that all sole trade account year ends should be aligned with the tax year end. The new rules will be implemented in the 2024/25 tax year with the transition year being 2023/24, their view is that this will help towards their overarching aim to simplify the UK tax rules.

For non-31 March or 5 April year end businesses, this would require a longer period to be taxed in the 2023/24 year, which may result in significantly higher taxable profits for the year (although any overlap profits can be offset first).

HMRC’s plan to mitigate the additional tax arising on the transitional rules is to allow the individual to spread the additional profit arising due to the change in accounting date over 5 tax years.

Originally the consultation paper suggested the change would be implemented in the 2022/23, therefore there has been a welcome delay to this policy to ensure taxpayers with the help of their agent can plan for this change.

Haines Watts

If you are a sole trader and have concerns about your tax year or questions about your tax return or any of the points above please get in touch on the number below.

Our Tax team will be able to discuss your options and ensure we make you aware of all opportunities to reduce your tax liabilities. Get in touch with us now for an initial fact finding discussion on the contact details below.