The way HMRC assesses your self employed profits that uses an accounting date between 6 April and 30 March is changing. This change will not affect companies.
Your accounting date is the last day of the period that you prepare your accounts for. You choose your accounting date and will normally make your accounts up to that date every year.
If your accounting date is between 31 March and 5 April this change will not affect you.
From 6 April 2024 with the introduction of Making Tax Digital you will be assessed on your profits for each tax year that runs from 6 April to 5 April.
There will be a transition year from 6 April 2023 to 5 April 2024, to allow any overlap relief that you may be due to be used against your profits for that tax year.
The changes will mean the amount of tax that you owe in the 2023 to 2024 tax year may change if you use an accounting date between 6 April and 30 March. You will be assessed on both the tax for profits for the:
- 12 month accounting period you have previously been using
- rest of the 2023 to 2024 tax year — minus any overlap relief that you may be due — spread over the next 5 tax years
You can spread the profits from the rest of the 2023 to 2024 tax year over a shorter period if you wish
Example where overlap relief is used against profits
- Your accounting period is from 1 October to 30 September.
- Your assessable profit is £32,000 from 1 October 2022 to 30 September 2023.
- Your assessable profit is £18,000 from 1 October 2023 to 5 April 2024.
- You have £6,000 of unused overlap relief that you use to reduce your assessable profit for 1 October 2023 to 5 April 2024 to £12,000 (£18,000 minus £6,000).
- The £12,000 profit is divided equally and assessed over the next 5 tax years at £2,400 a year (£12,000 divided by 5).
- In the 2023 to 2024 tax year your total assessable profits will be £34,400 (£32,000 plus £2,400).
