Basis period reform changed how self-employed people and partnerships with a non-31 March/5 April year end are taxed, moving everyone onto a tax-year basis. This guide explains what that means in practice for 2026/27 and beyond.
What Changed
Before the reform, self-employed people and partnerships with an accounting year end other than 31 March or 5 April were generally taxed on profits of the accounting year ending in the tax year — meaning profits could effectively lag behind the tax year, and complex "overlap profit" rules applied when a business started or changed its year end.
Under the reform, everyone is now taxed on the profits actually arising in the tax year itself (6 April to 5 April, generally treated as equivalent to a 31 March to 30 March year end for practical purposes), removing the old lag and the ongoing need for overlap relief calculations for new or continuing businesses going forward.
Transitional Profits
Businesses that previously had a non-tax-year accounting date typically had a one-off "transition year" where more than twelve months of profit needed to be brought into account to catch up to the new tax-year basis, using any historic overlap relief they had built up to reduce the transitional amount.
To soften the cash-flow and tax impact of this catch-up, the additional transitional profit (beyond a standard twelve months) could generally be spread over several tax years rather than being taxed all in one go, subject to specific rules on how the spreading works.
Choosing an Accounting Date Now
Since the reform, the tax advantage that some businesses previously gained from choosing a non-tax-year accounting date (such as deferring when profits were taxed) has been removed, so many practitioners now recommend aligning accounting periods with the tax year for simplicity, though a business can still choose a different accounting date for other operational reasons.
If your business still uses a non-tax-year accounting date, profits now need to be apportioned between accounting periods to arrive at the tax-year figure, adding a small amount of extra calculation each year compared with simply aligning your accounting date with the tax year.
Frequently Asked Questions
Does basis period reform affect limited companies?
No — it applies to unincorporated businesses, meaning sole traders and partnerships, not limited companies, which continue to be taxed on their own accounting period profits for Corporation Tax purposes under separate rules.
What happened to my overlap relief under the reform?
Any historic overlap relief you had built up under the old rules was generally used to reduce the transitional profit brought into charge in the transition year, effectively being used up as part of the move to the new tax-year basis.
Do I still need to worry about basis periods if my accounting date is already 31 March or 5 April?
Much less so — businesses already using a 31 March to 5 April accounting year effectively align with the tax year already, so the reform has a smaller practical impact on the timing of their assessments compared with businesses that previously used a very different accounting date.
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Can the extra transitional profit be spread over several years?
Generally yes — the additional profit created purely by the one-off catch-up to a tax-year basis could typically be spread over a number of tax years rather than taxed entirely in the transition year, reducing the immediate cash-flow impact.
Should I change my accounting date to 31 March now?
Many businesses have chosen to align their accounting date with the tax year to simplify ongoing calculations, since the previous benefits of a different accounting date have largely been removed by the reform, but this depends on your specific circumstances and is worth discussing with an accountant.
Does this reform change how much total tax I pay over the life of my business?
It mainly changes the timing of when profits are taxed rather than the total amount of tax paid over the life of the business, though the transitional year and any spreading arrangement can affect the amount due in specific years during the changeover period.
How does the transitional profit affect my payments on account?
The additional transitional profit brought into charge is generally excluded when working out payments on account for the following year, so a large one-off transition-year figure should not automatically inflate your next set of instalments — but the balancing payment for the transition year itself still needs to be budgeted for.
What if my accounting period straddles two tax years?
Where your accounting period does not match the tax year, profits are apportioned on a time basis between the accounting periods falling within the tax year to arrive at the figure taxed for that year, which usually means estimating the final months if your accounts are not yet finalised by the filing deadline.
Can I use provisional or estimated figures if my accounts are not ready in time?
Yes — if the actual figures for the later part of the tax year are not available when you file, you can use a reasonable estimate and later amend your return once the final figures are known, rather than delaying your Self Assessment submission.
Does basis period reform apply to new businesses starting after the reform?
Yes — any sole trader or partnership starting a new self-employment now is automatically taxed on a tax-year basis from the outset, so there is no separate transition step and no overlap profit to track, regardless of what accounting date they choose to prepare accounts to.
Disclaimer: This guide reflects UK rules as they generally apply in 2026/27. This guide is for general information only and is not professional advice. Consult a qualified adviser and refer to gov.uk for current official guidance before relying on any treatment.
