What you need to know about basis period reform

Kayleigh Wilson: Basis period reform

8th November, 2023, Kayleigh Wilson

Does your business’s year end coincide with the tax year end?  If not, you need to know about basis period reform.

Basis period reform is the government’s plan to move most sole traders and partnerships to an accounting year end in line with that of the tax year (31 March/5 April), by April 2024.  If your business’s year end date does not fall between these dates, we recommend that you consider the possibility of moving it, or the ongoing implications if you do not.

How will basis period reform affect your business?

Generally, businesses draw up annual accounts to the same date each year, called their accounting date. A business’s profit or loss for a tax year is usually the profit or loss for the year up to the accounting date in the tax year, called the basis period. For instance, if your accounts are drawn up to 30 June 2022, the profit or loss made during this 12-month period is assessed to tax in the tax year ended 31 March/5 April 2023, this is known as the current year basis.

Specific rules determine the basis period in certain cases, including during the early years of trading; these are called the opening year rules and very often result in creating overlapping basis periods. This means, in the beginning you may have been taxed on the same profits twice, generating overlap relief. Overlap relief is then given on the cessation of a business, or a change in accounting date. However, the basis period reform is seeing that all overlap relief will be utilised in the tax year ending 31 March/5 April 2024.

Businesses will have to calculate their profits or losses for two periods to report on the 2023/24 tax return, this is the transition year:

Standard part (period A): 12 months to the previously used accounting date

Transition part (period B): From end of period A to 31 March/5 April 2024.

Any additional profits taxed in the transition year will be automatically spread over 5 years, to avoid large tax liabilities that businesses cannot afford. This calculation is quite complex and will be done on a client-by-client basis.

Going forward your profits will need to be reported on a tax year basis, being 6 April to 5 April; this can be done by changing yearends to be in line with the tax year, or, by preparing two periods of accounts for each tax year and pro-rating accordingly.

Be ready for basis period reform

The tax year from 6 April 2023 to 5 April 2024 is the transition year for basis period reform. To make the move over as easy as possible we recommend starting the process now – we can help you with this.

If you are a sole trader or partnership with a year-end that does NOT coincide with the tax year end, please get in touch with us now.

Profile: Kayleigh Wilson FCCA CTA, Tax Manager

Advisory Fuel Rates for Company Cars

Advisory fuel rates company car by Chris Goad, Partner, Stephenson Smart

27th June, 2023, Chris Goad

Advisory fuel rates company car – an overview by Partner, Chris Goad:

New company car advisory fuel rates have been published and took effect from 1 June 2023.

The guidance states: ‘you can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 June 2023 are:

Engine size Petrol
1400cc or less 13p
1401cc – 2000cc 15p
Over 2000cc 23p

 

Engine size LPG
1400cc or less 10p
1401cc – 2000cc 12p
Over 2000cc 18p

 

Engine size Diesel
1600cc or less 12p
1601cc – 2000cc 14p
Over 2000cc 18p

 

HMRC guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel.

You must not use these rates in any other circumstances.

The Advisory Electricity Rate for fully electric cars is 9p per mile. Electricity is not a fuel for car fuel benefit purposes.

If you would like to discuss your company car policy, please contact us.

Time is running out to make use of super-deduction allowance

Blond - Hair coloring

22nd February, 2023, Kayleigh Wilson

Super-deduction allowance announced by the government in their 2021 Spring Budget comes to an end for claims on 31 March 2023.

Kayleigh Wilson, Tax Manager at Stephenson Smart, highlights that if you are a company that is looking to purchase new plant and machinery you may want to take advantage of this allowance before it ends.

What is super-deduction allowance?

Super-deduction works alongside the Annual Investment Allowance and gives 130 per cent deduction against the purchase of new plant and machinery.  However, it is only applicable to companies and for the purchase of new equipment.

Unlike the Annual Investment Allowance, there is no upper expenditure limit on super-deduction.

Example:

Purchasing a new tractor for 100,000 pounds.

Annual Investment Allowance – 100 per cent deduction = 100,000 pounds.

Corporation Tax at 19 per cent = tax saving of 19,000 pounds

Super-deduction – 130 per cent deduction = 130,000 pounds

Corporation Tax at 19 per cent = tax saving 24,700 pounds

As illustrated above, under the temporary super-deduction your company could gain an additional tax saving of 5,700 pounds.

What is Annual Investment Allowance?

Annual Investment Allowance gives 100 per cent deduction against business profits for the purchase of qualifying plant and machinery.

The current expenditure limit is 1 million pounds. It was announced in the 2022 Autumn Statement that this would remain at this level indefinitely.

Any expenditure in excess of this limit goes into a Main Pool or Special Rate pool for tax purposes and attract Capital Allowances at either 18 per cent or 6 per cent per annum.

There is also a 50 per cent first-year allowance for assets that would ordinarily qualify for the Special Rate Pool. However, if you have any remaining Annual Investment Allowance to use you should utilise that first to get 100 per cent deduction rather than 50 per cent deduction.

Do vehicles qualify for super-deduction?

Commercial vehicles such as lorries and vans do but cars do not. However, electric cars still qualify for the 100 per cent First Year Allowances.

Planning and timing are key to making the most of super-deduction and the Annual Investment Allowance. At Stephenson Smart we can help you get this right, please get in touch if we can support you with this.

Do you need business start up advice?

Stephenson Smart - Stephenson Smart Accountants

9th February, 2023, Chris Goad

Chris Goad, partner Stephenson Smart Chartered Accountants and Business Advisors offers some business start up advice.

Business Start Up Advice

Longer days and the promise of Spring bring with them a feeling of new beginnings.  This is a fitting time to think about setting up and running a business.

You may have a great idea that you are considering turning into a business but feel concerned about your lack of knowledge over what is needed and how it can be afforded.

Our advice is to always start with a business plan. It’s essential in guiding you in establishing and growing your venture and it can be a good way of planning targets and goals and looking at how much investment you are going to require.

Business Start Up Finance

You can look at two types of business finance – debt or equity.

Debt essentially means you borrow the money to set up a business in the form of a loan, whereas equity relates to selling an ownership interest in your business. This sort of sale takes many forms, such as the admitting of a partner.

A grant is also achievable. There are many on the market that you can apply for depending on what your business is and how big it is.

Type of Business Start Up

One of the most important aspects of setting up a business is deciding which type is right for you.

It might be that you wish to become a sole trader, limited company, company limited by guarantee or a limited liability partnership.

The type you choose will be dependent on a number of factors. Your tax position needs to be considered alongside the nature of the business you wish to run.

Compliance

It is important to consider how the business complies with tax, legislation and insurance requirements, which are imposed by various authorities, as well as understand how to keep the accounting records in order and make sure all self-assessment returns are completed on time.

At Stephenson Smart we support many clients who have independent and small businesses.

“Chris has been brilliant. I can literally send him a text with a quick question, and he is always so helpful.
With each start-up I have worked on Chris has guided me through the process and helped me with the business model. He’s also been so supportive throughout Covid and the different claims available to me.
I haven’t had the need to worry about anything because I know Chris is always at the end of the phone with an answer.”

Sean Brown, Owner, Cambridgeshire Hair and Beauty

We guide our clients through the appropriate registrations, cash flow forecasts and provided performance updates, and pride ourselves on our personal approach to nurture exciting and new ventures in a cost-effective way.

Our dedicated business start-up team are always happy to help, so get in touch.

Related pages: Business Start Ups

Profile: Chris Goad BFP FCA

Advisory fuel rates for company cars

Chris Goad - overview on advisory fuel rates company car

6th December, 2022, Chris Goad

Advisory fuel rates company car – an overview by Partner, Chris Goad:

New company car advisory fuel rates have been published and took effect from 1 September 2022.

The guidance states: ‘you can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 December 2022 are:

Engine size Petrol
1400cc or less 14p
1401cc – 2000cc 17p
Over 2000cc 26p

 

Engine size LPG
1400cc or less 10p
1401cc – 2000cc 12p
Over 2000cc 18p

 

Engine size Diesel
1600cc or less 14p
1601cc – 2000cc 17p
Over 2000cc 22p

 

HMRC guidance states that the rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel.

You must not use these rates in any other circumstances.

The Advisory Electricity Rate for fully electric cars is 8p per mile. Electricity is not a fuel for car fuel benefit purposes.

If you would like to discuss your company car policy, please contact us.

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