Reform of basis periods
For sole traders and individuals who are members of partnerships (including limited liability partnerships), the profits assessable in a tax year are those arising in the ‘basis period’ for that year, which is normally the accounting period ending in the tax year. Special rules apply on commencement and cessation of trade, as well as on a change of accounting date. These produce complications, such as some profits being assessed twice (‘overlap profits’). The double charge then has to be relieved later, usually on cessation of trade (but also sometimes where the business changes its year-end).
From 2024/25 (a year later than previously announced), a different basis of assessing profits is being introduced. Trading profits chargeable in a tax year will be the profits actually arising in that tax year, by apportioning the business accounting periods across tax years if the business does not have a 31 March or 5 April year-end.
2023/24 will be a transitional year for moving from the old to the new basis of assessment. It will involve up to 23 months’ profits being assessed in the year, with full relief for any overlap profits previously taxed twice. As businesses may have a significant increase in taxable profits for 2023/24 due to these rules, such additional profits will be spread over a period of five years (although a business may opt out of spreading and, instead, treat the additional amounts as arising fully in 2023/24). The rules will also aim to reduce the impact of transition year profits on allowances and benefits. Businesses with accounting periods ending early in a tax year (e.g. 30 April or 31 May) will have a much smaller delay between profits being earned and tax being payable on them.
Carry back of losses
The March 2021 Budget extended the period for which companies and unincorporated businesses can ‘carry back’ losses to offset against taxable profits of earlier years and claim a refund of tax paid on those profits. Losses of 2020/21 and 2021/22 can be carried back three years (subject to monetary limits). This rule has not been extended, so losses of 2022/23 will revert to the normal carry back period of one year.
Cultural tax reliefs
The government is extending the support it gives to the arts sector through Museums and Galleries Exhibition Tax Relief (MGETR) for two years until 31 March 2024, and increasing the headline rates of MGETR, Theatre Tax Relief, and Orchestra Tax Relief. Changes will also be made to better target the reliefs and safeguard them from abuse.