HMRC are proposing to change the basis period for professional partnerships such as lawyers and architects and all unincorporated businesses to 5th April.

The changes, which will take effect from the 2023/24 tax year will mean that businesses will be taxed on the profit or loss for the year ended 5th April regardless of the accounting period.

The consequence of this change will be to accelerate tax payments due. For a partnership/unincorporated business with an accounting period of 30 April this will mean that:

Currently the profit for the year ended 30/04/2023 will fall on the tax return for 2023/24 and the associated tax would therefore be payable by January 2024, July 2024 and a balancing payment January 2025. Under the new measures the business will need to draw up accounts to 5th April 2023 (or 31 Mach 2023) and tax will be payable January 2024.

2022/23 will be a transitional year and will include profits for the year ended 30/04/2022 and period ended 05/04/2023.

Any overlap relief generated at the commencement of the business will be available for offset and time to pay transitional arrangements will be available.

Unincorporated businesses, particularly those with rising profits, will be impacted significantly by this.

Please contact Samantha Daniels or Phil Dickinson to understand the impact of these changes on your business and ensure you have appropriate plans in place to manage your cash flow or options to potentially mitigate the impact by incorporating your business.