As the tax season approaches you may be confused over the changes with the tax basis period reform, particularly if you have a financial year that doesn’t align with the standard 31 March or 5 April.


There has been some misunderstanding regarding whether businesses can distribute excess profits if they adjust their accounting period this year. This shift can temporarily raise tax liabilities and introduce additional administrative costs.


A misconception has been that aligning a business’s accounting period with these dates in 2023/24 prohibits the distribution of any excess profits generated under the transitional rules. However, this is not the case, despite what some might have been informed.


Understanding the Transition


The reform changes how profits are calculated for tax purposes for unincorporated businesses. Starting from the 6th of April 2024, businesses will be taxed on profits earned in each tax year, irrespective of their financial year-end. The transitional tax year of 2023/24 serves as a bridge from the previous system to this new “tax year basis” of assessment. Here, businesses may encounter “transition profits” for which they can apply overlap relief and potentially spread any excess over up to five years.


What You Need to Know


Contrary to some advice, businesses can indeed change their accounting period in 2023/24 without forfeiting the ability to spread excess profits. The legislation specifies that for the standard part of the basis period for 2023/24, it always begins at the end of the previous period and runs for 12 months. Any additional period extending to 5 April 2024 (or 31 March if that’s when the accounts are drawn up) is considered the transition part.


For instance, if a business had a financial year ending on 30 April in 2022/23, the following would apply for 2023/24:

– A standard part from 1 May 2022 to 30 April 2023.

– A transition part from 1 May 2023 to 5 April 2024 (or 31 March 2024 if the accounts are drawn to that date).


This flexibility in accounting periods was intentional in the design of the new policy to encourage businesses to align their year-ends with 31 March or 5 April.


Decision Making


Businesses contemplating a change in their accounting period to either 31 March or 5 April in 2023/24 should not be deterred. However, they should consider whether to maintain a single extended set of accounts or to prepare two separate sets for different periods, as this can affect the calculation of transition profits.


Robson Laidler Accountants is closely monitoring these developments and is in contact with HMRC to rectify any miscommunications. We’re committed to providing personalised guidance to ensure that each of our clients understands and navigates these changes effectively.


Help and Support


The key takeaway is that the impact of these reforms varies significantly depending on individuals circumstances, and advice should be tailored accordingly.

We are hosting a webinar on this topic for our healthcare clients on June 13. Register here. 


Contact us for future help and support.