Tax year basis, transition profits and illustration

In this lesson

1. 0:00 Tax year basis and transition profits overview
2. 0:26 Understanding tax year basis for unincorporated businesses
3. 1:31 Time apportioning profits with non-standard year ends
4. 2:03 What are transition profits and why they exist
5. 2:36 How to spread transition profits over five years
6. 3:27 Accelerating transition profits to utilise lower tax rates
7. 4:40 Worked example: calculating tax with and without election

About this lesson

You'll discover why having a 31st March or 5th April year end simplifies tax calculations, and how to spread or accelerate transition profits over five years to minimise your tax bill. Through a worked example with Kathleen, you'll see how to strategically use the basic rate band when deciding whether to accelerate transition profits, a key technique for TX (Taxation) papers and real-world tax planning. The lesson covers tax year basis, which runs from 6th April to 5th April, and explains why profits need time apportioning if your accounting year end doesn't align with the tax year. You'll learn that transition profits arose when the tax system moved from current year basis to tax year basis in 2023/24, and how these profits are spread evenly over five years unless you make an election to accelerate them. The illustration shows how to calculate your tax liability under both scenarios and demonstrates the practical benefit of accelerating transition profits into years when you're a basic rate taxpayer, rather than waiting until you move into the higher rate band.

Duration: 6m