1.1 - The change in basis period: What this means for you
As a sole trader, partnership or property landlord you will
have a yearly accounting period. This is known as the
basis period. Normally this aligns to the tax year, i.e.
it runs from the 6th April to the 5th April. If this is you,
you can skip this section!
If you use a different basis period, such
as the calendar year, e.g. from the 1st
January to the 31st December, you will
need to switch your accounting period
to the tax year, i.e. 6th April to the 5th
April. Many partnerships, particularly
in professional service firms have their
year ending on the 30th April.
For partnerships and unincorporated
businesses which need to change
their basis period, the tax year 2023/24
is a transitional year. In this year, the
business/partnership will need to
recognise two periods of time for profit
1. The profit on the 12 months’ worth
of trading beginning with the start of
the basis period ending in the
2. The profit from the end of the basis
period through to the 5th April 2024.
Previously a partnership/business would have only declared the profits
for 12 months of trading. This means that your partnership or business
could potentially need to declare
nearly 2 years of profit at the end of the transitional year.
A partnership/business has a 12-month accounting period ending on the 30th April 2023. Under the basis period change it will be required to move it’s year end to the 5th April. This means in the 2023/24 transitional year it will need to declare the following profits, and be taxed on these:
1. Any profit generated from the 1st May
2022 to the 30th April 2023.
2. Any profit generated from 1st May
2023 to the 5th April 2024.
If you will need to change your basis
period, then please contact us. We
can advise on sensible tax planning
strategies and cashflow to minimise
the impact on your business with the
change in basis period.
1.2 - Self Assessment Tax Return vs Making Tax Digital for Income Tax
2 - MTD for Income Tax: What you need to do
Making Tax Digital for Income Tax will apply to you if you earn over £10,000 per year as a:
Sole trader or unincorporated business owner
Member of a partnership
Here is a summary of the requirements you will need to comply with for MTD for
3 - Year 1 and Year 2 Timelines
This is what happens when if your business or partnership has an accounting period which aligns with the tax year, i.e. 6th April to 5th April.
1. Self-assessment tax returns and income tax payments for FY23/24 will be due on the
31st January 2025.
2. The EOPS and Final Declaration can be submitted earlier than the 31st January 2026
for the 2024/25 tax year.
4 - Preparing for MTD for Income Tax
5 - Benefits of using Cloud Accounting vs Paper Records or Spreadsheets
Using cloud accounting software which is compatible with MTD for Income Tax is the easiest way to ensure you comply with the requirements of MTD for Income Tax. You’ve got time between now and the 6th April 2024 to enjoy the benefits of cloud accounting software. By taking action now you can have an orderly transition rather having to learn new ways of working and software packages in April 2024. April 2024 may seem a long way off, but this will happen really quickly.
Here are the main benefits of using cloud accounting software:
Work from anywhere with an internet connection
No more having to be in the office to send a quote or invoice.
Keep your data secure and safe
Your data is kept regularly backed up and very securely in the cloud. Which means less chance of data being lost OR being hacked.
Save time by automating the boring tasks
Cloud accounting software can automate many manual and repetitive tasks, such as matching payments to invoices.
No more software version clashes
Cloud accounting software updates automatically, so you will always be on the most up-to-date version.
6 - How We Can Help You
If you are already a client of ours you will be receiving regular updates about your responsibilities with MTD for Income Tax. We will also be offering training sessions to help you understand your responsibilities and use our recommended cloud accounting software.
We can also help you with:
Moving you onto a cloud accounting software package
Tax planning - particularly if you are impacted by the basis period change.