Mastering the UK Tax Year Shift: Navigating Changes, Overlap Relief and the Power of Income Tax Loans

As of April 2023, the UK changed its tax year basis, which now means the tax year runs from April 6th to April 5th the following year. While the change seems relatively simple, it will have a very significant impact on self-employed individuals and trading partnerships that have not previously calculated profits in a 12 month period that ends on or between 31 March and 5 April. 

Under the new tax year basis, even if you submitted a tax return on a different 12 month period in the past (you calculated your profits and losses on a year ending on 31st December, for example), under the new rules you will be liable to pay income tax on your profits from the first day after the last submitted accounting period up until and including April 5th 2024. The result is that you will need to pay income tax on more than 12 months profits, which may increase your liability very significantly.

Those most affected by the changes will be any individuals or partnerships that ended their accounting year at the end of April. Let’s say, for example, if you submitted your 2021 tax return for the period up until 30th April 2022 and started your new accounting year on 1st May 2022. In 2024, you will need to submit your 2023 tax return calculated on profits and losses over the period 1st May 2022 until 5th April 2024 - nearly two years profits. Going forward, you will then need to submit your tax return on a tax year running from 6th April - 6th May - a period of 12 months. The changes do not oblige you to change your internal accounting periods, only the 12 month period in which you calculate your income tax. If you already report your profits and losses to HMRC in accordance with an accounting year ending between 31st March and 5th April, you will be unaffected by the changes as you will already be in line with the tax year basis.

Because of the considerable impact of the new tax year basis to some individuals and partnerships, the 2023-2024 tax year will be considered by HMRC as a transition year. HMRC has also introduced an Overlap Relief for anyone that needs to calculate income tax on a period of more than 12 months. The Overlap Relief will see transaction profit (the excess profit calculated over a period of more than 12 months) period, apportioned to subsequent tax years in tranches, up until the end of the 2027 tax year. 

Income Tax Financing 

Anyone that will have a significant tax liability to pay in 2024 for the 2023 year (plus any additional months you will be tax liable to pay tax on during the transition period) may find the HMRC’s Overlap Relief a welcome tool to buffer the effect of the changes. However, it may still mean that you have a significant income tax liability and you will be impacted by this over several years if you carry profit over into subsequent tax years as a way to buffer the impact of the change to the tax year basis introduced in 2023. 

Income tax loans may be a beneficial and easy way to manage cash flow effectively and ease the burden of the changes, especially for the year ending 5th April 2024, as well as in the future, if you need to report profits over more than a 12 month period, as may often be the case if you run your accounts over a different time period: from every May 1st - April 30,  for example.

Income tax loans give you the possibility to raise finance to cover an income tax liability rather than paying HMRC. Your lender will pay HMRC directly, and you will then repay your lender in fixed amounts each month. Income tax loans typically last from 3-12 months and allow you to manage cash flow more effectively and, in the case of the new tax year basis, will mean you can settle your income tax and start with a ‘clean slate’ rather than paying on HMRC additional profits over several years or opting to pay a very significant amount in one go, which may affect your liquidity or require you dip into savings or liquidate assets. If you wished, this could support a move to running your accounts over the same period as a tax year ending between 31 March and 5 April in a simple and efficient way, which may be beneficial to you. 

We can negotiate income tax loans quickly, and arrange these facilities to coincide with payments to HMRC linked to your 2023 tax return, which will include the period up until April 5th 2024. These loans are competitively priced, and provided you can show you can meet repayments, lenders can usually consider offering a loan, even if you will have a very considerable amount to settle. We can arrange longer loan terms (six months or more) if you want to spread the cost of your income tax bill over several months to retain liquidity and optimise personal cash flow.

Key Benefits of Income Tax Loans 

• Cover an income tax liability with the amount you need to pay settled directly with HMRC by your lender while you pay it off in monthly installments to the lender Lenders are open to offering loans to individuals impacted by the new tax year basis and who may not have funds available to pay their income tax liability as a lump sum
• Facilitate cash-flow management
• Loans of all sizes are available, including loans of £100,000 
• Income tax loans are quick to arrange: we can negotiate offers in just a couple of days and can get offers based on projected profits and income tax liability so you have peace of mind going into 2024
• Repayment costs are fixed with the lender, so you know what you need to pay back each month 

Get In Touch

Lenders can consider you for income tax loans even if you will have a significant income tax bill to pay - you will just need to document that you have solid and steady income that allows you to pay back the loan easily and meet the lenders’ affordability criteria. You’ll need to have your accounts in order and be able to document your trading history and past financials, as well as projected profits. 

If you’d like to understand more about how we can help you access income tax loans, how this type of financing facility works or learn more about rates and terms, reach out to us. We’ll explain more about our expertise in arranging this type of finance, how we can help you in your specific situation and your options.