Changes to how HMRC assesses profits for sole traders and partnerships

The change applies to businesses that use an accounting date between 6 April and 30 March but will not affect companies.

The accounting date is the last day of the period that businesses prepare their accounts and the HMRC said they can choose their accounting date and will normally make their accounts up to that date every year.

It will not affect business if their accounting date is between 31 March and 5 April.

From 6 April 2024, businesses will be assessed on their profits for each tax year that runs from 6 April to 5 April. This change will affect how they fill in their tax return if they use an accounting date between 6 April and 30 March.

There will be a transition year from 6 April 2023 to 5 April 2024 to allow any overlap relief that may be due to be used against profits for that tax year.

The changes will mean the amount of tax owed in the 2023–24 tax year may change if using an accounting date between 6 April and 30 March. Businesses will be assessed on both the tax for profits for the 12-month accounting period they have previously been using rest of the 2023–24 tax year — minus any overlap relief that may be due — spread over the next five tax years. They can spread the profits from the rest of the 2023–24 tax year over a shorter period if they wish.

How profits for the 2023–24 tax year will be assessed

The way profits are assessed if using an accounting date between 31 March and 5 April will not change.

Profits for businesses with accounting periods ending between 6 April 2023 and 30 March 2024 will be divided and assessed over the five tax years starting 6 April 2023. If there is any overlap relief available, that will be set off against those profits first.

Any increased profits from the 2023–24 tax year will be treated in a special way to minimise the impact on benefits and allowances.

Overlap relief

If using an accounting date between 6 April and 30 March when starting a business, tax may be paid twice on some of your profits and be entitled to overlap relief.

Usually, businesses can only use overlap relief to get this tax back when they stop trading or when they change their accounting date. However, the HMRC will allow any business that uses any accounting period and that has unused overlap relief to use it in the 6 April 2023 to 5 April 2024 transition year.

HMRC will publish guidance on how to check how much overlap relief you may be due in the future.

Changing an accounting period

Businesses do not have to change their accounting period and can continue to use whatever accounting date suits their business.

However, they may want to consider changing their accounting date to 31 March or 5 April. If they do, this will align their accounting period with the end of the tax year and they will not need to apportion profits on their tax return every year.

The restrictions on changing the accounting date that is currently in place will be lifted starting from the tax return for 2023–24. If businesses change their accounting date in their tax return for a year before 2023–24, they will not be able to spread any extra profits that arise in the tax year in which they have made the change.

If businesses decide to change their accounting period, they will need to complete box 11 on the self-employment (full) (SA103F) page of their tax return.