A.) The 2023/24 tax year is a transitional year under basis period reform. From 2024/25 onwards, trading profits of sole traders and individual partners in partnerships will be assessed on a tax year basis (FA 2022 Sch 1 Para 61).
As you have advised that accounts will be prepared to 5 April 2024, it appears you are already aware that trading profits up to 5 April 2024 must be included on the 2023/24 tax return for a sole trader or individual partner in a partnership. In your client’s case, the basis period for 2023/24 will be the period from 1 October 2022 to 5 April 2024.
As this period exceeds 12 months, it will be split into two parts – the standard part (the 12 months to 30 September 2022) and the transition part (the period from 1 October 2023 to 5 April 2024) (FA 2022 Sch 1 Para 65).
If there are overlap profits brought forward, these will be deducted from the profits of the transition part and the remaining transition profits will be assessed over 5 tax years, commencing in 2023/24, per the spreading provision (FA 2022 Sch1 Para 72). It is possible to accelerate the charge to tax by electing to assess some or all of the transition profits in an earlier tax year (FA 2022 Sch1 Para 73).
See BM81310I for HMRC guidance on this election and an example of how any remaining transition profits will be assessed in subsequent tax years.
The profits received by the partnership from its property business will also be subject to basis period reform and the basis period for these profits will be the same as for the trade – 1 October 2022 to 5 April 2024 for 2023/24 and on a tax year basis in subsequent tax years.
Please note that if there are overlap profits brought forward in respect of the property business, these will be deducted from the profits of the property business for the full period. If this creates a loss, this loss will be deducted from the total income for 2023/24. HMRC’s guidance can be found at BIM81340.
Per FA 2002 Sch1 Para 72, the spreading provision only applies to profits which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, i.e. trade profits.
This means that your client’s profits from the property business for the long period to 5 April 2024 will be fully assessed in 2023/24 and the tax arising on those profits will be due in full by 31 January 2025.
The Croner-i Direct Tax Reporter guidance on the 2023/24 transitional rules can be found at 230-200.
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