QUESTION: I own a small corner shop that I have operated as a partnership for many years and I prepare partnership accounts each year to September 30. Can you explain what changes are coming regarding how my tax bill will be calculated?
ANSWER: If you’re self-employed or part of a business partnership, significant changes are coming to how your tax is calculated.
The shift to the new ‘tax year’ basis starts from the 2024/25 tax year.
This year, 2023/24, is a transition period, which could make your next tax return more complex than usual. If you have unused overlap relief, now is the time to act because if it’s not used this tax year, it will be lost forever.
Under the current self-assessment system, your taxable profits are based on the accounting period your business uses, which might not align with the tax year. For example, if your business has an accounting period ending on September 30, your tax calculations are based on those figures, even though they don’t match the tax year.
However, from 2024/25, your taxable profits will be aligned with the tax year (April 6 to April 5). This change means that businesses with accounting periods that don’t match the tax year will have to adjust to the new system.
The 2023/24 tax year is the transitional year, where you’ll have to account for both the profits from your usual accounting period and any extra profits needed to align with the tax year.
Overlap relief is something many self-employed individuals and partners in partnerships may have without even realising it.
It arises when the same profits were taxed twice during the early years of your business—especially when the self-assessment system was first introduced. Overlap relief allows you to offset these duplicated profits against future taxable profits.
It’s vital to check if you have any overlap relief to use because it can reduce the amount of tax you owe. Any overlap relief not used by the end of this tax year will no longer be available in the future.
You’re affected by the new tax year basis periods if you’re self-employed or a partner in a partnership and:
Your accounting period doesn’t end between March 31 and April 5.
Or, even if your accounting period does end between these dates, you have unused overlap relief.
If you think you might have overlap relief, it’s essential to include this figure in your 2023/24 self-assessment tax return. Here’s how you can find out:
Check your past tax returns: Overlap profit should have been recorded in Box 70 of the self-employment full supplementary pages (SA103F). Any overlap relief used would be in Box 69.
If you can’t find the information from your previous tax returns, speak to your accountants who can contact HMRC and ask them to assist.
It’s essential to act soon, especially if you need help from HMRC to find your overlap relief information.
If you’re filing your tax return online, the deadline is January 31 2025. While this gives you more time, it’s still important to request your overlap relief figures as soon as possible to avoid any delays.
If you don’t request your overlap relief information in time and have to estimate or use provisional figures on your tax return, you’ll need to amend your 2023/24 tax return later with the correct figures. This can complicate things, so it’s better to avoid this scenario by acting early.
If you’re self-employed or part of a partnership, it’s important to understand how the new basis period reform affects you, particularly in terms of overlap relief.
By acting now—starting your tax return and requesting help from HMRC if needed—you can avoid the rush closer to the deadlines and potentially save money by using overlap relief before it’s too late.
Don’t wait until the last minute. Start your 2023/24 tax return now to ensure you have plenty of time to gather all the necessary information and avoid complications with HMRC.
The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
