Abolition of basis periods for income taxed as trading profits

From 2024-25 and subsequent tax years, basis periods for determining the profits of a trade under chapter 15 ITTOIA 2005, Pt. 2 (trading income) will be abolished so that the trading income allocated to a tax year will be the profits arising in that tax year, rather than (as currently) the profits for the accounting year that ends in the tax year. 

Four new sub-sections are added after section 7 ITTOIA 2005, s. 7A to 7D to align these changes:

  1. S7A – Apportionment etc of profits to tax year
  2. S7B – Late accounting date rules
  3. S7C – Rule if trader starts to carry on trade after 31 March
  4. S7D – Rule if there is a late accounting date.

The tax year 2023-24 will be a transition year when businesses that do not have a basis period that aligns with the tax year will be brought into line with the tax year basis and all overlap relief brought forward will be used. 

Profits of property businesses: late accounting date rules

To avoid the inconsistency for five days between 31 March up to and including 4 April, three new sub-sections are added to section 275 of ITTOIA 2005 - S275A to S275C. These sections set out:

  1. S275A – Late accounting date rules
  2. S275B – Rule if trader starts to carry on trade after 31 March
  3. S275C – Rule if there is a late accounting date.

From 2024-25 the above changes will be legislated to bring the widespread practice of treating property businesses profits of a year to a date near to the end of the tax year (usually 31 March) as being equivalent to the profits of the tax year. Instead of being required to apportion profits between tax years (ITTOIA 2005, s. 275), those who draw up accounts to dates between 31 March and 4 April will be allowed to treat the profits between the end of their accounts and the end of the tax year as falling in the following tax year and businesses commencing after 31 March may be treated as commencing in the following tax year. 

ACCA has submitted its response to HMRC, making a number of suggestions for the above changes which can be seen here

You can find guidance on claiming overlap relief within this ACCA article which includes examples.

Useful resources

HMRC announcement.