Reporting Self-Employed Profits for the 2023–24 Tax Year

This guide is for self-employed individuals, including sole traders and partnerships, who need to report their profits for the 2023–24 tax year and want to understand how those figures should be calculated.

Accurately reporting profits is essential for completing your Self Assessment tax return correctly and avoiding problems with HMRC later on.

Managing Overlap Relief and the 2023-24 Transition Year Changes

Under the current rules there can be overlapping basis periods. When this occurs, tax may be charged on profits twice and generate ‘overlap relief’. This overlap relief can be used on the cessation of a business or when an accounting date is changed. The new method of using a ‘tax year basis’ will remove the basis period rules and prevents the creation of further overlap relief. 

The new rules will come into effect in the 2024-25 tax year and the current 2023-24 tax year is known as the ‘transition year’. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief can be used against profits for that tax year.

Affected businesses in 2023-24 will be assessed on the tax for profits for the:

• 12 month accounting period they have previously been using and for the rest of the 2023-24 tax year.

Any excess profit covering more than 12 months, is known as ‘transition profit’. This can be reduced by overlap relief and the remaining profit will be spread over the next 5 tax years until 2027-28.

The changes do not affect sole traders and partnerships who draw up annual accounts to a date between 31 March and 5 April. These businesses will continue to file as usual for the 2023-24 accounting year. 

What Counts as Self-Employed Profits?

For Self Assessment purposes, your profits are generally calculated as the difference between your business income and your allowable business expenses for the tax year.

This means including all income received from your self-employed activities during 2023–24 and deducting expenses that are wholly and exclusively incurred for the purposes of the business.

How Profits Are Calculated for 2023–24

Most self-employed taxpayers calculate their profits using the traditional method of income less allowable expenses. This requires accurate records of:

• Business income received during the tax year
• Allowable expenses such as materials, professional costs, and running expenses

In some cases, simplified expenses or cash basis rules may apply, depending on the nature and size of the business.

Partnership Profits

If you are part of a partnership, the partnership’s overall profit is calculated first. Each partner then reports their share of that profit on their own Self Assessment tax return.

It is important that partnership figures are agreed and reported consistently, as discrepancies can lead to HMRC queries.

Common Reporting Issues

Problems often arise where income is omitted, personal expenses are claimed incorrectly, or figures are estimated without proper records.

These issues can result in inaccurate tax calculations and may need correcting later.

Risks of Reporting Profits Incorrectly

If self-employed profits are reported incorrectly, HMRC may raise queries, make adjustments to your return, or charge additional tax, interest, and penalties.

Even unintentional errors can lead to complications, particularly if HMRC believes reasonable care was not taken when preparing the return.

HMRC Guidance on Reporting Self-Employed Income

HMRC’s official guidance on what income and expenses to include when reporting self-employed profits is available on
GOV.UK.

Are You Reporting Your 2023–24 Profits Correctly?

Whether your profits have been worked out correctly will depend on your income streams, allowable expenses, and how your business is structured. For those based in Wimbledon and nearby areas such as Wimbledon Park and Raynes Park, a short review with CIGMA Accounting can help confirm that the figures reported for 2023–24 are accurate, complete, and consistent with HMRC requirements.