The UK's tax landscape is about to undergo a significant transformation, particularly for unincorporated businesses. The Basis Period Reform, set to take effect from the 6th of April 2024, is at the forefront of these changes ...
This would lead to complexities in tax reporting. However, the Basis Period Reform seeks to standardize this process. Starting from 6 April 2024, unincorporated businesses will be required to pay tax based on the profits earned during the tax year itself, which runs from 6 April of one year to 5 April of the next.
The reform will predominantly impact:
- Sole traders and partnerships whose accounting period end date does not fall between the 31st of March and the 5th of April
- New businesses that commence operations from the 6th of April 2024 onwards
The tax year 2023/24 will serve as a transition period. During this time, businesses might report profits for more than a 12-month period, potentially leading to additional tax liabilities spread over five tax years (from 2023/24 to 2027/28).
Any businesses with accounting periods ending between the 31st of March and the 4th of April will be treated as if they end on the 5th of April for the purposes of the reform. This adjustment aims to simplify the transition for businesses close to the tax year-end.
Due to the alignment with the tax year, some businesses might find it challenging to finalise their accounts in time for tax reporting. In such cases, they can use estimated figures, which can be amended up to 12 months after the online filing deadline.
Well, for unincorporated businesses in the United Kingdom at least. While it introduces a new method of calculating taxable profits, it also offers clarity and consistency in the long run. Businesses should familiarize themselves with the upcoming changes and consider seeking professional advice to ensure a smooth transition.
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