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Keith Senior, of Jacobs Allen, says business people need to plan now for 2024 tax changes

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Alongside the Budget at the end of October, HM Revenue & Customs issued a policy paper outlining the changes to the basis of taxation that will now happen from 6 April, 2024.

It would be fair to assume that we have plenty of time before that happens, but the reality is that you need to start planning now if you are to ensure you pay the least tax possible.

The change affects all self-employed individuals and partners who currently prepare their accounts to a date that is not in the range between 31 March and 5 April each year. Its effect will be to accelerate taxable income and potentially charge a higher amount of tax.

Keith Senior, of Jacobs Allen
Keith Senior, of Jacobs Allen

The reason we need to address these changes now is that there will be a ‘transitional year’, which is now 2023/24, when you will be required to make the change of accounts date and so bring more profit into charge.

If you are to plan for these changes, particularly if your profits are only now starting to grow again after Covid, you should consider changing your accounting date earlier in the current or next year, 2021/22 or 2022/23.

Let’s say your current accounts are made up to 30 April and your profits are or anticipated to be 30 April 21 £12,000; 30 April 2022 £25,000; 30 April 2023 and each year following £50,000.

Jacobs Allen
Jacobs Allen

If you leave it until the statutory change transitional year, you will be assessed on profits of £95,000 in 2023/24, and will be taxed at higher rate. That will mean you will pay approximately £9,000 more tax overall than if you transition in the current year. It is likely that there will be provisions to spread the extra profits over a period of five years, but in the profits example given, that will still mean those profits are taxed at higher rate.

It is important that you now think about how your business will be performing in the next few years and check with your accountant, or us, if you need to take action before 31 March 2022 to enable you to minimise the tax you will pay.

-- Keith Senior is a director at Jacobs Allen Chartered Accountants & Chartered Tax Advisers