The government has launched a consultation on its proposal that the assessable profits for self-employed individuals will be those arising in the tax year, rather than the current rule which is to tax the profits of the accounting year that ends in the tax year.
This will affect all individuals that do not have an accounting year end of 31 March (or 5 April).
The tax year 2022/23 will be a transitional year. If the profits assessable in the transitional year are higher than would be the case under the current rules, then it is proposed that there will be an election to spread the additional profits over a period of up to 5 years.
2021/22 - Current rule
Tax return due and balancing payment due by 31 January 2023
2022/23 - Transitional rule
Tax return due and balancing payment due by 31 January 2024
2023/24 New rule
Tax return due and balancing payment due by 31 January 2025
There is little time to work out the 3/12 prorated assessable profits so these will need to be estimated and a provisional tax return submitted to HMRC. Amended returns will need to be submitted once the figures are finalised.
At this stage you should work on the assumption that the proposals will be broadly adopted as outlined.
You will need to plan for the extra tax that will arise in 2022/23 (mainly tax payable on 31 January 2024) as a result of the change.
Discuss with us the impact of changing your accounting year end to 31 March.
The consultation period ends on 31 August 2021 and it is likely the final legislation will be enacted this winter.