Any increased profits from the 2023 to 2024 tax year will be treated in a special way to minimise the impact on benefits and allowances.
How overlap relief can be used
If you set an accounting date between 6 April and 30 March when you started your business, or if you subsequently changed your accounting date, you may have paid tax 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 change their accounting date. However, HMRC will allow a business with unused overlap relief to use it in the 6 April 2023 to 5 April 2024 transition year.
In the example above, any overlap relief would be deducted from the £18,000 in step 3, also thereby reducing the profits spread over the subsequent 4 tax years.
Please give us a call on 0131 440 1373 to speak to us about how much overlap relief you may be due in the future.
Changing your accounting period
You do not have to change your accounting period and can continue to use whatever accounting date suits your business.
However, you may want to consider changing your accounting date to 31 March or 5 April. If you do, this will align your accounting period with the end of the tax year, and you will not need to apportion profits on your tax return every year.
HMRC have confirmed that the restrictions on changing your accounting date that are currently in place will be lifted starting from the tax return for 2023 to 2024. If you change your accounting date in your tax return for a year before 2023 to 2024, you will not be able to spread any extra profits that arise in the tax year you made the change in.
Please give us a call on 0131 440 1373 because we will be able to clarify this change and discuss your options directly.