Key Update for UK Fiscal Year 2024
Transition to Tax Year Basis in Accounting Standards
Transition to Tax Year Basis:
Previously, businesses’ profits or losses for a tax year were based on the ‘basis period’, which was usually the profit or loss for the year up to the accounting date in the tax year.
The new measure changes this to a ‘tax year basis’, aligning a business’s profit or loss for a tax year with the profit or loss arising in the tax year itself, regardless of the accounting date.
Impact and Objectives:
This change aims to create a simpler, fairer, and more transparent set of rules. It addresses issues like double taxation of early years of trading profits and the complexity of maintaining records of overlap profits and relief.
The reform is expected to bring the payment of tax closer to the time that profits are earned, thereby improving compliance and reducing tax debt write-off.
Implementation and Transition Period:
The reform will be operational from the 2024 to 2025 tax year, with a transition year in 2023 to 2024. Special rules will apply during the transition year to align the basis periods with the tax year, and any overlap profits will be relieved in full in 2023 to 2024.
For more detailed information on these reforms, you can visit the GOV.UK website.