Due to the new basis period reform rules, HMRC has introduced a calculator for sole traders and self-employed individuals to compute transition profit for the 2023/24 tax year. This calculator excludes partnerships.
These rules affect around 530,000 people, requiring profits to be reported up to the tax year end if the accounting year differs, starting from 6 April 2023. For accounting years not ending between 31 March and 5 April, profits must be apportioned between periods.
Before using the calculator, one must obtain their overlap relief figure. Transition arrangements apply for 2023/24, taxing profits from after the 2022/23 accounting year end to 5 April 2024. Overlap relief can be claimed under specific conditions, such as accounting dates not aligning with the tax year.
Taxpayers will be taxed on both the 'standard part' (12 months post the 2022/23 accounting period) and the 'transition part' (after the standard part until 5 April 2024 or the accounting date if between 31 March and 4 April 2024).
For example, a 31 December year-end would involve reporting from 1 January 2022 to 31 December 2023, and 1 January to 5 April 2024. Transition profit, after overlap relief, is spread over five years, with at least 20% taxed in 2023-24 and the rest equally over the next four years.
Exceptions apply for farmers and creative artists regarding averaging adjustments. The calculator cannot be used for businesses and partnerships or if more than two accounting periods fall within the specified time frame
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