Choice of accounting date under old basis period rules

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

The allocation of accounting profits to basis periods for tax purposes was reformed by FA 2022, s 7, Sch 1 and replaced with a tax year basis from the tax year 2024/25. The rules which apply for the tax year 2024/25 onwards are set out in the Tax year basis from 2024/25 onwards guidance note and the rules for the transitional tax year of 2023/24 including businesses starting in 2023/24 are set out in the Basis period transitional rules 2023/24 guidance note. The details below therefore are only relevant under the old basis rules.

Factors to consider

When choosing an accounting date for a business, there are advantages and disadvantages in picking certain dates.

There are key factors to consider:

•
cash flow
•
administration, and
•
other short term factors

There can be also short-term benefits in selecting, or changing to, a particular year end. This is of relevance where there is a change in tax rate or taxpayers’ wish to crystallise the deferred tax asset of overlap profits.

Cash

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