Glossary · UK
What is Basis Period Reform?
The change from 6 April 2024 that taxes self-employed sole traders on profits arising in the tax year, not their accounting period.
Full Definition
Before 2024/25, self-employed sole traders and partnerships were taxed under the current year basis: profits from the accounting year ending in the tax year were assessed, with opening year rules and overlap relief managing the difference between accounting and tax years. From 6 April 2024 the tax year basis replaced this entirely. Now, taxable profits are those arising in the actual tax year from 6 April to 5 April, regardless of when the accounting year ends. Businesses with accounting years already ending 31 March or 5 April are largely unaffected. Those with non-April year-ends faced a transition year in 2023/24 that assessed profits from the end of the 2022/23 basis period to 5 April 2024 — potentially more than 12 months of profits in a single year. To avoid a spike in the 2023/24 tax bill, HMRC allowed transitional profits (the extra months beyond the normal 12) to be spread equally over five tax years from 2023/24 to 2027/28. Any unused overlap relief built up under the old system could also be offset against transitional profits. Businesses with non-standard year-ends now need to apportion profits from two accounting periods each year, or align their year-end to 31 March or 5 April to simplify reporting.