Transition Profits - 2023-24

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We've just had our software updated for the 23/24 tax year (one of the major ones). Looking at transitional profits as sole trader. 

We've found that it completely ignores the transitional profit rules / the profit spreading rules if the business has chosen to change their year end to 5 April 24 or 31 March 24. In that instance, it doesn't calculate any profit spreading. Just deducts overlap in the normal way that would apply to a year end change. 

It works out the transitional profits and spreading perfectly if they keep their year end of, say 30 Sep 2024, or 30 June 2024. But I imagine most businesses will be switching to 5 April 24 or 31 March 24.

We think its a bug. But wanted to ask if anyone else has experienced the same with their software? 

Its my understanding of the rules that a business who had previously prepared their accounts to say 30 June every year would benefit from the spreading provisions whether they continue to prepare accounts to 30 June 2024, or whether they moved their year end date to 31 March 2024.

Our software thinks otherwise. 

Replies (95)

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RLI
By lionofludesch
05th Apr 2024 11:15

What software is that?

It might be helpful to say.

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Replying to lionofludesch:
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By Paul Crowley
05th Apr 2024 11:24

+1
They have all had years to plan for this.

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By Tax101
05th Apr 2024 11:35

Its IRIS

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Replying to Tax101:
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By Paul Crowley
05th Apr 2024 11:48

That is what I feared.

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By Ardeninian
05th Apr 2024 12:19

Yes, you're right and the software is wrong. Unless the business is ceasing at 5 April or 31 March, of course.

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Replying to Ardeninian:
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By Tax101
05th Apr 2024 12:22

No no cessation. We think its wrong.

But its such a major bug (surely the vast majority of busiensses will be switching to 31/3/24 or 5/4/24 year ends) from such a major provider - we thought we must be missing something.

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Replying to Tax101:
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By Ardeninian
05th Apr 2024 12:57

The only other thing I can think of is that the original draft of the legislation did work in that way - it didn't provide spreading where the year end changed to 31/3 or 5/4. But that isn't the case with what is actually in FA22. Definitely a software issue.

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By AdamJones82
05th Apr 2024 12:25

Iris Elements or full fat Iris?

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Replying to AdamJones82:
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By Tax101
05th Apr 2024 12:31

Full IRIS

(I'd love someone else to test this - and report if they get the same results. We're running the recent April update, Personal Tax 24.1.0.576)

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Replying to Tax101:
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By Matrix
05th Apr 2024 12:52

Does it tax the two periods less overlap relief and then also add on 1/5 of the transitional profits?

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Replying to Matrix:
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By Tax101
05th Apr 2024 13:13

It taxes the two periods. Deducts overlap relief. (As for a normal year end date change) but does nothing else.

(Same result if its a single long period run to 31 Mar 24 or 5 April 24, rather than two periods)

None of the transitional boxes on the return are included. No adjustment of the tax comp for the 1/5 of transitional profits. No transitional calculation figures in the software interface at all.

Although it does do all this and adjusts perfectly for the transitional profits if for example the year end dates just runs say June 23, June 24, June 25.

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Replying to Tax101:
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By Matrix
05th Apr 2024 13:31

OK well Taxfiler isn’t working correctly either yet the figures in boxes 73.1, 73.2 and 73.3 look correct, it does the above. I would need to spend some time on it with live figures.

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Replying to Matrix:
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By rmillaree
05th Apr 2024 18:42

is the most likely issue here simply that hmrc have not released the calcs that work as they should do yet so this is probably an online filing exclusion case as things presently stand ?? - note software companies MUST follow calcs as laid down by hmrc even if they are known to be wrong or misisng data !!

the fact that 2024 hs222 is not currently available to download from normal hmrc source suggests this may be the case? perhaps

does anyone have link to example calcs with basis periods included with detail of how on ewould expect each box to be prepopulated - if someone provides details of how it should work on box by box basis i can test run calc on btc

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Replying to rmillaree:
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By AdamJones82
05th Apr 2024 19:09

Taxcalc has had it correct ever since the release of 2023/24 last week though

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Replying to AdamJones82:
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By lionofludesch
05th Apr 2024 19:18

AdamJones82 wrote:

Taxcalc has had it correct ever since the release of 2023/24 last week though

Iris probably won't be accepted then, as the HMRC protocols aren't followed.

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Replying to AdamJones82:
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By rmillaree
05th Apr 2024 19:50

"Taxcalc has had it correct ever since the release of 2023/24 last week though"

if thats the case then i was probably barking up the wrong tree.

Takes a a bit to make hmrc look good - perhaps iris are one of the few who can achieve that !!

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Replying to rmillaree:
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By Matrix
05th Apr 2024 19:16

Probably not as two different software are giving two different results. I have moved the profits in the second self-employment page and I think it is giving the correct result now so must have been user error.

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Replying to Matrix:
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By rmillaree
05th Apr 2024 19:52

must admit i looked at boxes in btc and lost the will to try and work it out without a nice worked example in hs222

does anyone know if hs222 2024 version exists yet ?

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Replying to rmillaree:
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By FactChecker
05th Apr 2024 20:27

Bit of a long shot, but HMRC came up with this insane policy last year ... that nothing should be published on GOV.UK 'in advance' of when it is 'live'.

Not only insane, and (obviously) applied inconsistently, but that'll be why - as reported on another thread - they 'updated' the VAT Registration tool on 1st April ... and discarded the one that was 'no longer valid' (although it was very much still needed by some caught in the midst of the changeover).

Maybe HS222 for 2023 will suddenly appear tomorrow ?!?

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Replying to FactChecker:
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By FactChecker
06th Apr 2024 14:00

Looks like I was right for once ...

... this morning HMRC sent me notification of 150 CGT / SA / PAYE /et al pages of guidance and forms effective as of today for the new tax year - which does include HS222.
[This was just the main 'daily notifications', with several more specialist ones still to be looked at!]

This policy seems truly insane to me (akin to drowning people in a blizzard and removing what they might still need to survive - or at least to file a return) ... as well as ruining my quiet Saturday.

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Replying to rmillaree:
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By FactChecker
06th Apr 2024 14:04

Here you are ... https://www.gov.uk/government/publications/how-to-calculate-your-taxable... ... published just in time to allow you some weekend working!

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Replying to FactChecker:
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By rmillaree
07th Apr 2024 12:02

cheers Fact Checker - kinda makes sense. Perhaps the fact hmrc do so much flip flopping nowadays with their new policies there may be some logic holding stuff back just in case they want one m0re flop.

"published just in time to allow you some weekend working!"

weekend (non january) is for necessary vat return deadline filing only - serves me right for having a week in lanzarote

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Replying to rmillaree:
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By wizwozzoo
11th Apr 2024 14:50

I am using Taxcalc and finding it is not populating transitional profits from box 73.3 to the tax calculation. I believe the issue lies with HMRC's SA110 Tax Calculation Summary Notes. As rmillaree points out, software developers have to follow HMRC's tax calc.
73.3 specifically should not be recorded in box 76 and it is only box 76 that finds its way to page TCSN 4 for SA.
You can carry out a "find "on HMRC's tax calc and it only shows 73.3 being populated to the NI and student loan sections, not the IT section.
I have sent a support request to Taxcalc to highlight the issue.
It is hard to believe HMRC have released this without any basic checks; I am disappointed, but not even remotely surprised.

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Replying to wizwozzoo:
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By rmillaree
11th Apr 2024 15:17

I am using Taxcalc and finding it is not populating transitional profits from box 73.3 to the tax calculation.

are you sure ?

on my software the amount is included but its not included in the headline income figure.
It is shown as a plus adjustment to the income tax due .

so calc ignores the 73.3 up to the line - income tax charged after allowances and reliefs.

then there is random line

plus tax due on transition profit of 1505 - £301.00

1505 being transitional profit being taxed and 301.00 being tax due on that line item.

then the class4ni is calculated on the sum of the tow as one would be expected

i have to preume this odd layout is related to way child benefit tax charge threshold is calculated.

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Replying to rmillaree:
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By wizwozzoo
11th Apr 2024 16:22

Thank you for highlighting this, I was fixated on the Tax Calculation Summary, I was expecting it to be part of the self employed profits, I can now see the tax on transitional profits is recorded further down on the SA302. I remain mystified as to how it finds its way into box A240 on page TCSN 16.

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Replying to wizwozzoo:
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By rmillaree
11th Apr 2024 17:11

without bothering to look at all the boxes it makes shense tat the number will show up in some of the calculation boxes and not others. clearly for calculating overall amount subject to tax and ni it must be included albeit it could be its sum of two separate numbers perhaps ? - but presumebly on some boxes referring to income it may be excluded if those boxes are being usewd to calculate the figure for hicbc purposes - well thats my presumption anyway i could be talking nonsense.

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Replying to rmillaree:
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By Ardeninian
23rd Apr 2024 11:56

The "random line" reflects the law of how transition profit is taxed. See para 75 Sch 1 FA22 - also BIM81320, and the ATT's helpful page at https://www.att.org.uk/technical/news/basis-period-reform-faqs under "How is the tax on transition profits calculated?"

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Replying to Ardeninian:
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By rmillaree
23rd Apr 2024 12:11

cheers Ardeninian really useeful link to BIM81320

why on earth have aat not advised how to complete the tax return ? or have they and i have missed it?

seems crazy no one wants to advise how the figures translate onto tax return boxes - specifically box 64 seems to be suggesting its profits per acounting poeriod being entered - when it seems like we need to enusre its only the the standard part of the period included in box 64 - hey ho perhaps someone has clarified and i have missed it - i will keep plugging awy till i find the link - perhaps its in thew detail of the step by step tax calc somwhere

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Replying to wizwozzoo:
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By AdamJones82
16th Apr 2024 11:08

That's wrong. I am using Taxcalc and it is spreading when I use the built in wizard

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Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of acoutnss)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

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Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of acoutnss)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

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Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of accounts)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

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Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of accounts)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

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Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of accounts)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

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Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of accounts)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

Thanks (0)
Replying to Tax101:
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By gogarloch
02nd May 2024 12:10

yes we have the same issue with IRIS. They said we are wrong. I sent them example 9 from guidance ( changing to a March year end and 2 sets of accounts)and HMRC online calculator. The have told me they are in touch with HMRC. Still waiting a response.

Thanks (0)
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By Paul Crowley
05th Apr 2024 19:58

It would be really nice if someone from IRIS would come forward

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Replying to Paul Crowley:
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By rmillaree
05th Apr 2024 20:29

"It would be really nice if someone from IRIS would come forward"

thats like refreshing live score in the vain hope there will have been a goal for your team since you last checked 15 seconds ago **- technically possible but more chance of Peter Malnati winning the masters than that actually happening.

** fans of teams facing man u excepted from this rule based on recent form.

ps i dont think Peter Malnati will win the masters !! - but i will happily have a bet on that outcome if IRIS turn up here and clarify the situation !! - safe to say i think my money will stay in my pocket !

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By songb1rd
05th Apr 2024 20:53

I'm getting the same or similar problem with the 2023/24 "Ablegatio Ftax" Return (Self Employment [Full] pages). I enter the accounts for the fifteen month period to 31 March 2024 less Capital Allowances. Then the profit of the transitional period is deducted. But the tax calculation shows additional tax due for 2023/24 with respect to the transitional profit to be 40% (plus 2% Cl 4 NIC) of the total transitional profit, not one-fifth of it! I've been looking forward to this too:-)

I've yet to receive a reply to my query to the helpdesk earlier today.

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Replying to songb1rd:
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By rmillaree
11th Apr 2024 15:28

But the tax calculation shows additional tax due for 2023/24 with respect to the transitional profit to be 40% (plus 2% Cl 4 NIC) of the total transitional profit, not one-fifth of it! I've been looking forward to this too:-)

its reasonably clear to me that boxes 73.1 and 73.2 and 73.3 work as labelled on btc

the profit for the transition period is in 71.1
the overlap claim is in 71.2
and the transition profit being taxed goes in 73.3

Note i am manually entering the correct figure in 73.3 - so presumably your issue here is that you have too high a figure in 73.3? has this box being manually calculated if so have you ensureed on teh 1/5 of the trans profit less overlap is included?

If anyone has any queries can they please advise which box numbers are completed please as that may help clarify any problems that may exist.

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Replying to songb1rd:
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By rmillaree
11th Apr 2024 15:28

But the tax calculation shows additional tax due for 2023/24 with respect to the transitional profit to be 40% (plus 2% Cl 4 NIC) of the total transitional profit, not one-fifth of it! I've been looking forward to this too:-)

its reasonably clear to me that boxes 73.1 and 73.2 and 73.3 work as labelled on btc

the profit for the transition period is in 71.1
the overlap claim is in 71.2
and the transition profit being taxed goes in 73.3

Note i am manually entering the correct figure in 73.3 - so presumably your issue here is that you have too high a figure in 73.3? has this box being manually calculated if so have you ensureed on teh 1/5 of the trans profit less overlap is included?

If anyone has any queries can they please advise which box numbers are completed please as that may help clarify any problems that may exist.

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By AdamJones82
05th Apr 2024 22:56

I've used Elements and Taxcalc. Taxcalc has a built-in calculator you can use if you wish, Elements is just manual entry
Both, thankfully, coming up with the same calculation and liability figure!

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By rmillaree
07th Apr 2024 14:33

ok i have had a quick play here with btc and i think i must have some user error - if anyone can help please that would be apperciated. any of my calcs could be wrong - it just doesnt work out as i would have expected - must admit with all the steps involved i could have gone wrong literally aywhere !!

example prior year end 30/11/2022
new year end 31/3/2024
acounting period 01/12/2022-31/03/2024
basis period 01/12/2022-31/3/2024??
12 month period 01/12/2022-30/11/2023
transitional peirod 01/12/2023-31/3/2024

profit for period 01/12/2022-31/03/2024 50000
profit for 12 month period 01/12/2022-30/11/2023 = 37474
prfoit for transitional period 01/12/2023-31/03/2024 12526
overlap profit bf 5000

taxable this year
transitional period profit less overlap 7526
20% of this sum 1505
12 month period 37474
37474+1505 = 38,979

ok do above calcs look right ?

this is where it gets messy when i try to complete tax return

box 64 net profit for acounting period 50000
box 69a overlap profit be 5000
73 adjusted prfoit 50000
73.1 profit or loss of transitional part of the basis period 12526
73.2 overlap relief used on the transitional part of the basis period 5000
73.3 spread of the transition profit treating as arising in this tax year 1505
box 76 total taxable profits of the business 50000

per tax calculation
profit from self employment 50000
"profit on transition profit" added as later line item adjust 1505

these calcs are out by 12,526 if my calcs are right the transitional profit simply not being deducted - not sure but think this is exactly the same problem the op has?

i would think its unlikley btc and iris would both get it wrong? - so i have to presume i have made a c [***] up somewhere in the calcs - or i simply cant find where i need to factor in the 12526 reduction that would be needed to get 50k total down to 37474

note box 68 would accept such an adjustment but as accounting period and basis period are the same (i think?)

am i correct in presuming that the transitional period shows as weird adjusted line entry as this profit is trated differently for working out child benefit tax charged calcs ?

hopefully my calcs are right and i just need a prompt as to how i adjust out the 12,526 on the tax return if we presuem its not an error on the part of btc that its not removed automatically

can anyone assist?

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Replying to rmillaree:
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By FactChecker
08th Apr 2024 14:59

In case it helps (probably doubtful) HMRC have today extended the page at https://www.gov.uk/guidance/work-out-your-transition-profit
... to include their "calculator to help you work out your transition profit"

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Replying to FactChecker:
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By rmillaree
08th Apr 2024 17:03

that smei useful as i can fact check my calcs - the numbers came up the same. albeit is only detailing transitional profit by year

Bit silly that they didnt actually tell us the profit that need to be declared on the return and the relevant return box entries as i am still none the wiser in that regard - that may simply be me losing the plot though .

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Replying to rmillaree:
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By Matrix
08th Apr 2024 19:29

There is no entry in box 69 (there isn’t a box 69a). Box 64 should be £37,474.

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Replying to Matrix:
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By rmillaree
08th Apr 2024 19:51

you are right that there is no box 69a on the return - btc have gone the trouble of inventing a box 69a that is presumbaly used in conjunction with "their box 69 " - presumably depending on circumstances we fill in the appropriate box based on their text and that presumably results in the correct result in box 69 on the return - as i have 69a completed box 69 is greyed out.

I suspect this is most likely that they feel if they used the hmrc wording then people might perhaps get confused ? - or perhaps they need two boxes to cover figures brought forward via rollforward and manually entered - btc often does extra above and beyond checks where people are likely to make numpty errors

Note box 69a is labelled overlap profit brought forward
and box 69 is labelled Overlap relief not previously deducted
on a change of accounting date

perpahps they simply dont agree with hmrc wording here and feel their wording is right and proper

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Replying to Matrix:
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By rmillaree
08th Apr 2024 20:01

"Box 64 should be £37,474."

that would certainly fix the glitch i have.

is there an earlier box that changes the the total from 50k to 37474 though ?

per my acounts figures i am entering all income and expenses for period 1/12/2022-31/3/2024 - so i have 50k profit as starting point - i cant see any specific guidance that says that i need to reduce this down by transitional profit when calculating box 64 ? i suspect it is there somewhere but would be nice to see it in black and white.

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Replying to rmillaree:
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By Matrix
08th Apr 2024 20:07

This was my user error a few days ago which I fixed, you exclude the transitional profit. I also did two self-employment pages.

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By rmillaree
08th Apr 2024 20:36

cheers that makes sense that the transitional profiots are excluded - does the advise confirming that fact exist in black and white ?- i feel like it seems wrong to not use the 50k in absence of specific instructions that the lower total should be used - how do i get to the lower total ? surely i dont pro rata income and expenses downover do i ?

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