April 25, 2024
Article
The latest income tax changes in respect to the change in basis periods could significantly impact cashflow for those who did not have a 31 March or 5 April year-end.
Please note, these changes do not affect sole traders or partnerships that already have a 31st March/5th April year-end or if you trade through a limited company.
Whether or not you have decided to change your year-end, individuals will still be taxed to 31 March/5 April, providing a longer taxable period as shown below.
Also shown here is the ‘Transitional period’, being the additional period to bring you in line with 31 March/5 April. While the transitional profits are excluded when considering farmers averaging, these trading profits can be spread out over five years to help reduce the tax impact.
![KB table](https://albertgoodman.co.uk/assets/uploads/documents/KB-table.png)
It is easy to see here that the increased period being taxed this year could result in a spike in your 31st January 2025 tax payment.
When planning for these basis periods changes, some of the things that should therefore be considered are:
- Overlap profits – these being the profits that were taxed twice when you joined the partnership
- Future profits and whether you expect them to increase or decrease
- Whether you consider trading for more than 5 years
- Opting to suffer the tax on all the transitional profits up front as it may be taxed at a lower rate
- Future cash flow and whether cash is available now.
The key starting point is to understand your individual tax position and then plan your cashflow. You can aid this by:
- Saving early to build your tax reserves.
- Consider new schemes, such as SFI, that provide quarterly payments to support cashflow.
- Forecast your performance, increasing cash through trading.
- Plan capital investments for the next 5 years.
- Speak to HMRC to discuss payment plans.
Please do contact us if you would like to discuss this in more detail.