Tax Year Basis for Unincorporated Businesses – Amending Estimates

From tax year 2024/25 unincorporated businesses will be required to compute their profits on the new ‘tax year’ basis, i.e. those arising between 6 April and 5 April. Many businesses are considering changing their accounting period end to align with the tax year but those that choose not to will need to apportion their profits and may need to estimate some of the figures in order to meet the 31 January filing deadline.

For example, a business with a 31 December accounting year end would need to include nine months of the profits from the year ended 31 December 2024 and three months from the year ended 31 December 2025 in 2024/25. The results for the year ended 31 December 2025 are unlikely to have been finalised by the 2024/25 filing deadline of 31 January 2026. This will require an estimate of those profits/losses and use that as the basis for the 2024/25 tax return submission.

HMRC’s guidance on provisional figures currently requires businesses to make amendments to provide final figures ‘without delay’. HMRC have now announced that this condition will be relaxed before the start of the basis period transition year in 2023/24.

Earlier this year HMRC consulted on a number of options on how to deal with provisional figures. The government have decided that they will allow businesses to amend provisional figures by the normal time limit for making amendments. For the 2024/25 tax year this would be on or before 31 January 2027, the same filing date as the 2025/26 return.

In order to avoid this additional complexity, unincorporated businesses should consider amending their accounting date to 31 March or 5 April. The timing of the change is critical, and it will generally be better to do this to 31 March or 5 April 2024 due to the ability to spread additional profits arising over 5 tax years.