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We are getting closer to a shift to a ‘tax year’ system of evaluation. Starting April 6, 2023, we entered a transition year, which will affect businesses that do not follow a financial year ending on April 5 or March 31. From the 2024/25 tax year onward, businesses whose financial years continue on March 31 or April 5 will find tax reporting more time-consuming. Let me give you an example.
Tom’s accounts are finalised each year on December 31. For his 2024/25 tax return, he must calculate profits from April 6, 2024, to April 5, 2025. This calculation will require him to divide two accounting periods into days (those ending December 31, 2024, and December 31, 2025). Unless Fred changes his accounting date to April 5 or March 31 (which the new rules allow and are considered April 5 year-end), he’ll have to divide five days from another accounting period into the tax year.
The deadlines for filing tax returns will stay the same under the new system, meaning Tom must submit his 2024/25 tax return by January 31, 2026, at the latest. However, he is unlikely to finalise his accounts by this date for the 12 months to December 31, 2025. Hence, his tax return will include estimated figures.
If your business currently uses estimates and then updates them ‘without delay’ once the final figures are available, don’t worry. There won’t be penalties if your final tax payment exceeds your initial estimate (though you will have to pay interest on the extra tax).
Starting in the 2023/24 transition year, businesses will be given more time to update their estimated figures. This change follows a discussion last year about making using and updating estimated figures each year less burdensome. You can now amend provisional figures within the usual time limits. For Tom, he’d have until January 31, 2027, to change his 2024/25 figures.
This new rule will let businesses adjust estimated figures when filing their tax returns for the following year. While this is a helpful adjustment, it will be much simpler if Fred aligns his financial year with the tax year, avoiding using estimates altogether.
‘Overlap profits’ might have been made when a business started trading. They will be accounted for when figuring out profits for the transition year (2023/24) or if you change your accounting date for the tax year 2022/23. If you or your agent need a record of overlap profits, HMRC can provide this information if stored in their systems.
HMRC will be releasing more details in the coming months about ‘overlap relief support’ for businesses that want to change their accounting dates in 2022/23 or use overlap relief in the 2023/24 transition year. They’ve asked businesses and their agents to wait to contact them until they can share more information. When dealing with estimated figures for your tax returns, it’s important to remember that it may require more time. Taxpayers should make sure to factor in extra time and fees. If you need help with your Tax Planning , please call our tax advisors.