25.1.2023 | Tax

Ways to manage business taxes with increased energy costs

Tax expert Beatons shares steps for sole traders to consider if profits have reduced between the accounting year end and April 5 2022.


As the cost of energy continues to be high, businesses are feeling the pinch, perhaps even more so than households.

Despite this, many businesses will be paying taxes this month on their accounting profits for 2021/22.

Sole traders can consider steps to help manage this if profits have reduced between the accounting year end and April 5, 2022.

Changing the accounting year-end

One good solution to consider is a change to the business accounts year-end so that you can reflect the effect of the higher energy costs sooner.

HM Revenue & Customs (HMRC) is already requiring all businesses to use a March 31 or April 5 year-end for tax purposes in the 2023/24 tax year anyway, so making this change earlier could have advantages.

Businesses which operate a year-end different to these dates above will have to apportion profits for tax purposes to a March 31 or April 5 year-end for the 2023/24 tax year.

The effect of changing year-end means that the financial results of the business will be taxed over a longer period.

A company with an April 30 year-end would then be taxed on profits from May 1, 2021, through to April 5, 2023, in the 2022/23 tax year.

But if a company starts with a different year-end, some profit is taxed twice.

This is the ‘overlap profits’, which you can deduct when you move back onto an April 5 or March 31 year-end.

Obviously, the tax effect will be dependent upon your overlap relief and the current year’s profits, and if the figure is higher, you don’t have to change the tax basis of the assessment until the 2023/24 tax year.

But if you are struggling with higher costs, then it is likely that your tax bill will be reduced by a year-end change.

And, when you change your year-end in 2023/24, as will be mandatory, there will be options to spread any increased tax over five years.

Loss carry back

If high energy costs have caused businesses to have a loss for income tax purposes, these can be carried back.

However, the loss will not be recognised for an accounting period ending after April 5, 2023, when preparing your 2022 Tax Return, but you can:

  • Reduce tax payments on account for the 2022/23 tax year, the first of which is due on January 31, 2023.
  • Speak to HMRC about a time-to-pay arrangement for the 2021/22 tax year liabilities.
  • Prepare your 2023 tax return as soon as possible after the 2022/23 tax year-end of April 5, 2023, and claim to carry any loss back to the 2021/22 tax year. This will create a credit which can be set against the tax due for 2021/22

If you have other income aside from self-employment income, you might consider whether setting off any trading loss against your other income generates a greater tax saving than carrying the loss back.

If you would like to discuss the points raised  or gain a better understanding of how your business will be taxed over the forthcoming years, discover how you might be able to reduce liabilities, please contact Beatons t: 01473 659777 or e: info@beatons.co.uk