Sole traders who need to comply with the new requirement to report their profits at the end of the tax year can access a GOV.UK interactive tool to help them navigate the changes.
The tool will help sole traders complete their 2023-24 Self Assessment tax return correctly based on the details they provide about their business, profits, losses and other information.
Around 280,000 sole traders along with around 250,000 partners in partnerships and LLPs will be affected by the changes being introduced by Basis Period Reform, also known as tax year basis reporting. There is guidance available for all those affected on GOV.UK. Limited companies are unaffected by the changes.
These businesses will now need to report their profits up to the end of the tax year, even if their accounting year ends on a different date. The first time they will be required to do this is when they submit their 2023-24 Self Assessment tax return, which is due by 31 January 2025.
HMRC has dubbed 2023-24 a ‘transition year’ for those affected by this reform. The interactive guidance will help sole traders calculate the Basis Period Reform elements of their tax return. The existing online form for sole traders and partners to request overlap relief details will continue to be available and is unaffected.
Partners can also find guidance on how to work out their profits at gov.uk.
Sole traders and partners who don’t already report their profits to 31 March or 5 April may find they have to report more than 12 months of profits in 2023-24. This could result in more income tax being due.
HMRC’s mitigation allows transition profits made during the extra months to be reduced by overlap relief, with any remaining transition profits spread across the next five tax years up to 2027-28.
Self Assessment tax returns for the 2023-2024 tax year can be submitted from 6 April 2024. Businesses should prepare now to:
- get their overlap relief figure
- work out their transition profit
- include both their transition profit and overlap relief in their Self Assessment tax return for 2023-24
- watch Get Help with Basis Period Reform on HMRC’s YouTube channel. More information can be found on UK.
