Personal Tax- How to show Transitional Profits 2024 examples/queries

personal-tax-how-to-show-transitional-profits-2024-examples

Personal Tax- How to show Transitional Profits 2024 examples/queries

17th April 2024

IRIS Personal Tax

IRIS Personal Tax- How to show Transitional profits 2024 onwards examples and queries

For the FULL KB on the Basis Period Reforms and Transitional profits 2023/2024 onwards

Not getting any Transitional Profits in 2024 for my 05/04/2024 period, why? When there is a 5th April year end 2024, the period is not liable for any Transition Profits. However, we are aware that there are some instances where the current year end has been extended to a long period that ends 31st March-5th April 2024, then the transition profits are not being calculated. We currently have an outstanding query on this scenario with HMRC to get further clarity on whether an extended period is subject to transition profits.

Currently PT provides Transitional Profits on the examples below for a Sole Trader and similar for Partnerships

1. Transitional Periods/Profits options only appear in the 2024 Tax year. If you change year (at the top of PT) to 2023 or 2022, then the function/box for it will not appear.

2. Check all your period entries: Incorrect entries will not trigger the profits to show. Below is a example period for 30/09/2024 etc and that the previous periods are also identical 30/09/2023, 30/09/2022 etc. There is another example at the very bottom for 31/12/2024 period.

Warning: If you have the 30/09/2023 period (Example of period image below) changed to another date, say: changed to 28/09/2023 then this may disrupt the calculation and stop Transitional Profits from appearing (This is the same issue as the query we have already raised to HMRC on extended long periods). So currently, if no transitional profits appear then check all your period entries and also your income entries.

Warning: Changing the 30/09/2024 to ’05/04/2024′ will currently stop the process for Transitional Profits (as stated above)

2. Run a Trade Computation. It will run the standard 1/10/2022 to 30/09/2023 – £28K. THEN it will run Transit period from 01/10/2023 to 05/04/2024 based on the days – 30k x 188/366 = £15409(less overlap)= £10231. This creates the ‘Transit Profit’ which shows on the Self employment Summary screen. This £10231 is divided by 5(years) and give a final apportioned profit of £2046 which is applied in the Tax comp (showing as taxed)

3. Open the relevant period, go to the bottom and select the magnifying glass for ‘Transitional Period Profits 2023/2024’ and ‘Profits Taxable’, this opens the summary screen. You can override the Step 5. apportioned profits by ticking and entering a higher amount (NOTE: you cannot give less then the apportioned value or it will not save).

Trade comp is left image. Summary screen is right image

4. Run a Tax computation. If there are profits, then it will show £2046 as taxable = £429. This ONLY appears as a new line on the Tax comp below the % tax calculations total called Tax due on transition profit of £XXXX. See left image

5. Run a Tax return. The values will show on updated SA100 Self employment OR Partnership Tax pages. See right image on SEF4 Page (Full Self Employment 1page) and Box 67 is auto filled with the correct 05/04/2024 end period. Note the Taxed value will not show in its own box (as no box exists) and only appears on the Tax comp.

I have the correct periods but still no transitional profits show?

a. Check your income level entries over 2 periods. If the income is insufficient then a loss(negative) will show on Step 3 and no transitional profits will be given. For example in the image below: In the Trade comp, under the Transitional period section: if the profit amount is insufficient and the ‘Overlap Relief’ exceeds the profit then a loss is created (As on step 3 below) and no transitional profits will be given. As a test you can edit the income (and also of the other period) and run the Trade comp to see the difference on the calculations.

b. Check all the other dates (not period dates) for the client in that trade eg Dates for ‘cessation of trade’ and you have correct dates under “Involvement – like From and To” etc

c. Check if you have the next period added in with the relevant income (eg if you have periods 31/12/XXXX, then make sure you also have a 31/12/2024 with income entry as well). You may get a warning if the next period is not entered in to explain why no profits are given:

If a period is saved as 31/12/2024 as another example, so you can see the same type of calculations etc.