Blog post

Basis Period Reform for Self-Employment

Robin Maxwell

September 25, 2023

HMRC’s Basis period reform is coming soon and will change the timing of tax payments for some self-employed businesses. If you are a sole trader or a partnership and your accounting year end date is neither 31st March nor 5th April, you will need to be aware of these changes.

What is Basis Period Reform?

Basis period reform is a change to the way that self-employed individuals and partnerships are taxed on their business profits. The current system, known as the “accounting date basis”, taxes profits based on the accounting period of the business, with the year end accounting date becoming the tax point for taxable profits to be entered onto tax returns for self-employment. Basis period reform will change the way that profits are allocated to tax years. Under the new system, profits will be taxed in the tax year in which they arise, regardless of the accounting date of the business. The aim of this is to simplify the basis period rules.

When will Basis Period Reform take effect?

Basis period reform will come into effect in the 2023/24 tax year. This year will be known as the “Transitional Year” since any business with an accounting year end of anything other than 5th April or 31st March would need to account for all business profits up to 5th April 2024.

What are the transitional rules?

Any profits made between the old accounting date and the end of the 2023/24 tax year would then be known as “transitional profits”. In essence, this represents the bringing forwards of tax liabilities to match the way that 5th April or 31st March year end accounts are treated.

Transitional profits can be reduced by any overlap profits retained by the business. Overlap profits were created when the business commenced trade and were double taxed in the first year of trade of the business where a 31st March or 5th April accounting date was not used. If overlap profit figures are not known, then HMRC can be contacted for this figure.

What do I need to do?

If you are a sole trader or partnership with a year end of anything other than 5th April/31 March, you need to act now.

There are a few things you can do to make the change over easier and reduce the impact of your transitional profits:

  • Change your accounting year end date to 31st March or 5th April 2024. This would simplify the process but is not compulsory and each case will need to be considered individually.
  • Spread your transitional profits over a five-year period. This option is available to you if your transitional profits are less than £100,000.
  • Claim overlap relief. This relief can be used to reduce your transitional profits by the amount of any overlap profits that you have retained.

If you are unsure about how Basis period reform will affect your business, please contact us for advice. We can help you understand the changes and make sure that you are compliant with the new rules.

Contact us today

We are here to help you with all your tax and accounting needs. Contact us today to discuss Basis period reform and how it may affect your business.


Robin Rogers spencerRobin Maxwell

Robin Maxwell is a partner of Rogers Spencer and has been working with us since 2003. Robin specialises in Accountancy Solutions, Audits and Tax and VAT. Find out more about Robin here.

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