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Is your tax bill going up?

Is your tax bill going up

If you are a sole trader or partner with a year end other than 31st March or 5th April, then please read on, you could end up paying more tax this year, even if your profits haven’t increased. Here’s why….

HMRC announced the sexily named “Basis Period Reform” a while ago. This basically means that in an attempt to simplify the tax system, all sole traders and partnerships need to have a year end for tax purposes of 5th April (although HMRC will accept 31st March).

This means that if your current year end is not either of those, you will need to report a longer period of profits on your 2023/24 tax return. In the most extreme cases, this could be as long as 23 months (if your year end was 30th April).

E.g. if you have a year end of 30th June, you will need to report profits from 1st July 2022 to 31st March 2024 on your 2023/24 tax return. This is 21 months, so your tax due on 31st January 2025 will be much higher than you might be expecting, all because of tax simplification!

The good news is that HMRC will allow up to 5 years for you to spread the extra tax over, if you need it, so some relief. Nevertheless, if you are expecting good trading results in 2023/24 the extra tax burden could be sizable.

Each case needs to be assessed, as these changes might actually benefit some, but sure as “eggs is eggs” there will be more losers than winners.

There may be some benefit in not spreading the extra tax also, so careful planning is needed.