Transition to Tax Year Basis

Question 1

standard part

Answer 1

normal year end

Question 2

transitional part

Answer 2

from end of normal year end to 5/4/24

Question 3

spread of transitional profits

Answer 3

5 years (20%)
first 20% taxed in 23/24

Question 4

steps for calculating assessable profits for 23/24

Answer 4

STEP 1: standard part profits/losses

STEP 2: transitional part profits/losses

STEP 3: deduct overlap profits from STEP 2

STEP 4: add up STEP 1 & 3

if either or both of STEP 3 & 4 are nil/loss then STEP 4 is the total profit/loss for 23/24

if not a nil / a loss then proceed to STEP 5

STEP 5: transition profit to spread over 5 years is lower of STEP 3 and STEP 4

STEP 6:

if STEP 1 is nil/loss the 23/24 profit is the appropriate amount of transitional profits

if STEP 1 is a profit the 23/24 profit is STEP 1 + appropriate amount of transitional profits

Question 5

what happens to transitional profits if trader ceases within 5 years

Answer 5

treat balance of transitional profit as profit in year of cessation

Question 6

election to pay tax on transitional profits

Answer 6

election must be made on or before TR deadline for that tax year

Question 7

how are transitional profits treated in tax return

Answer 7

treated as a separate component of taxable income

taken into account for adjusted net income (determining PA available & pension extension to bands)

don’t include when working out high income child benefit charge

don’t include when working out restriction in pension annual allowance