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 ...
The Basis Period Reform is a significant step towards simplifying tax reporting!
This reform aims to simplify the way taxable profits are calculated and reported, making the process more aligned with the tax year. Traditionally, businesses, especially sole traders and partnerships, calculated their taxable profits based on their accounting period.
"This period could end at various points during the tax year!"
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.
"The Basis Period Reform is a significant step towards simplifying tax reporting!"
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.
Until next time ...
ALISON MEAD
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about Basis Period Reform and how it may affect you, it may be a great idea to give me a call on 01604 217365 and let's see how I can help you.
Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.
You know what they say: if you want something done well ask a busy person!
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