Stick or twist... is it time to change your account date?

Stick or twist... is it time to change your account date?

Stick or twist... is it time to change your account date?

With the ups and downs of recent budgets, the fast approaching changes known as the ‘basis period reform’ seem to have somewhat slipped under the radar. However, such changes are going to have a profound impact on partnerships and sole traders.

From 6 April 2024, profits chargeable to tax will be based on the actual amount arising in that tax year. 

This will remove the time lag between the end of the accounting period and the tax becoming due. All part of HMRC’s making tax digital drive to align the tax basis with other sources of income.

For example, giving the most extreme instance with a 30^th April 2024 year end…  

Previously the results for the year ended 30^th April 2024, fall within the 2024/25 tax year. Therefore the tax due would be 31 January 2026, a time lag of 21 months.

The basis period reform, would now require that the taxable profits for 2024/25 to be made up of:

• 1 month of the results year ended 30 April 2024

• 11 months of the results for the year ended 30 April 2025

This tax again would be due by 31 January 2026, however this is now based on year ended 30 April 2025 results.

This change in the basis periods gives us lots to consider, the most compelling perhaps is whether it will be beneficial to change year-end to be aligned with the new rules which may remove the complexities or to stay as they are.

In general, we would normally recommend to change but, this decision is dependent on many variables and there is a strong need for earliest consideration.