Get ready for the 2023/24 basis period transition

From this date sole traders and partnerships will be taxed on their net profits earned for the ‘tax year basis’ ie from 6 April to the following 5 April each year. 

We shared step-by-step guidance in a previous article for the implementation of changes in basis period for sole traders and partnerships and its transition for tax year 2023/24, which is just around the corner for practitioners.

You can also listen to this free webinar delivered by Paul Soper in April 2023, which summarises the practicalities of basis period reform – what the changes will be, who it affects, and the transitional rules.

A key impact of one of the changes in accounting period is allowing the taxpayer to claim overlap profit relief. The HMRC Manuals include a number of examples of changes in accounting period and how to claim overlap relief, which can be found below:

• BIM81040 Change of accounting date – years 1-3

• BIM81045 Change of accounting date – year 4 onwards

• BIM81050 Change of accounting date – year 4 onwards: commercial reasons for change

• BIM81055 Change of accounting date – year 4 onwards: year after ineffective change

• BIM81060 Change of accounting date – year 4 onwards: examples

• BIM81065 Apportioning profits to basis periods

• BIM81070 Apportioning losses to basis periods

• BIM81090 Overlap relief – given on change of accounting date

• BIM81110 Previous year basis – transitional overlap relief

• BIM81200 Tax year basis and transitional rules including spreading transition profit

How to get your overlap profit figure

To claim your overlap profit, you need to know your overlap profit carried forward – which may already be entered on a previous self-assessment return form through:

• trading income on self employment (SA103)
• trading income on partnership (SA104)
• both trading income on self employment and partnership.

If you do not know your overlap relief figure – and you cannot find it on your previous self assessment returns – you may need to request this information through G-Form via your Agent Service Account. The form needs to be completed for each individual client for which a temporary access key (like CGT declaration through ASA) is provided to revisit the form if not completed in one go.

All affected taxpayers with an accounting date other than 31 March or 5 April should use the overlap relief service ahead of submitting returns for the 2023/24 transitional tax year.

Once you are logged in your Agent Service Account, you need to have all the following information to hand:

• agent’s name, address, phone number, etc
• details of your client, including name, address, UTR
• start date for your client’s business or the date they became a partner in a partnership
• most recent basis period used by the client (most likely what was submitted on the previous tax return).

Once a request for information has been submitted, the taxpayer can expect to receive a response from HMRC within three weeks, unless the case is particularly complex. To avoid scams, HMRC has confirmed that its confirmation reply will contain the following details so you can be sure it has come from HMRC:

• a UTR, redacted to show the last four characters
• the first initial of your name
• your last name.

You should start looking into your clients’ overlap relief claims and requests for information from HMRC if this information is not held on record in good time so that you are able to correctly complete your clients’ 2023/24 tax returns.