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Change of basis period

By Ensors Team
12th Oct 2022

Do you operate an unincorporated business, and is its financial year-end other than 31 March/5 April? If so, there are changes afoot to how the business profits will be taxed in future!

Currently, unincorporated businesses report their taxable profits in the tax year when the financial period ends; so for a year-end of 30 September 2022, (being the date many ag businesses use to line up with the arable harvest year) the taxable profits are reported in the 2022/23 tax year.

The “simplification” changes dictate that the taxable profits reported in a tax year should be those arising in the tax year; for a 30 September year-end, that would mean half the profits from one financial year plus half the profits from the next financial year.

The change is set to take place for 2024/25, with 2023/24 being the transition year; translated, that means for a 30 September year-end, the profits reported in the 2023/24 tax year will be for the full financial year to 30 September 2023, plus half the profits from the year to 30 September 2024, so 18 months-worth of profits will be reported in 2023/24!

This presents two main issues:

  • firstly, to have accurate figures for the last 6 months of the 18-month transition period to include in the 2023/24 tax return by the deadline of 31 January 2025, taxable profits for the year ended 30 September 2024 will need to be established within 4 months of the year-end (this will also be the trend for future years); not an easy task as harvest results are unlikely to be finalised in this timeframe; it may be possible to make estimates to be subsequently amended when the actual figures have been calculated.
  • secondly, with 18 months-worth of profits being reported in 2023/24, this will likely lead to much higher tax liabilities in the transition year; there are options to mitigate this, but will be on a case-by-case basis

Changing the business’ financial year-end may help address the additional future administrative burden, but this may not work for everyone. Speak to your accountant to find out how the changes may impact your business and to explore your options.