Criticism of Finance Bill leads to amended basis period transitional rules
From April 2024, sole traders and partners will be taxed based on the profits earned during the tax year, as opposed to the profits for the basis period ending during the tax year. The draft rules were initially criticised, so an amendment has been made. What’s the full story?
To enable the move to tax-year basis periods, the 2023/24 tax year will make use of transitional rules; the profits for the accounting period ending in 2023/24 will be taxed along with the profits up to April 2024 (the “transition component”). As with any major change to taxation, some taxpayers would have been adversely affected during the transitional year. For example, a long accounting period could cause an individual’s income to exceed the threshold for the high-income child benefit charge or the abatement of the personal allowance.
To counteract this, the draft rules sought to exclude the transition component from net income within the tax calculation. However, this unintentionally caused a further issue: due to the order that tax reducers are applied in the calculation, certain reliefs could not be used to reduce the tax due on the transition component.
Following criticism, an amendment has now been made that will allow all income tax reliefs to be applied without increasing the net income. This then allows income tax reliefs including top slicing relief, EIS/SEIS/VCT relief and double taxation relief to reduce the tax on the transition component.
Related Topics
-
VAT reduced on advance payment if customer cancels?
A subscriber to our newsletter wrote to us with a query. The business supplies a three-stage training course to students that fully pay (non-refundable) in advance for all three stages. If the students drop out before the end, can our subscriber partly reduce the VAT paid to HMRC on their return?
-
HMRC scrutinising directors’ loans
HMRC has begun a new compliance campaign targeting company directors who owed their companies money. What’s the full story, and how should you respond?
-
New two-tier mileage rates for electric vehicles
The amount that employers can reimburse staff for business travel in company cars changes from 1 September 2025. What are the new rates, and why is this update different to previous ones?
This website uses both its own and third-party cookies to analyze our services and navigation on our website in order to improve its contents (analytical purposes: measure visits and sources of web traffic). The legal basis is the consent of the user, except in the case of basic cookies, which are essential to navigate this website.