Basis Period Reform: How it impacts you and your business

If you’re a sole trader or partnership that uses an accounting date between 6 April and 30 March, the way HMRC assesses your profits is changing. 

From 6 April 2024, you will be required to report your business tax information to HMRC using the tax year running from 6 April to 5 April, regardless of your business accounting period. 

If you use a business accounting date between 31 March and 5 April, the below changes will not apply.

Changes to reporting profit

Up until 5 April 2023, profits could be reported in line with your businesses accounting year end date within the relevant tax year. 

The changes brought by Basis Period Reform require all self-employed individuals and partnerships to report their business tax information to HMRC on a tax year basis, regardless of their accounting period. 

Example: If your accounting year end date was 31 December 2022, you will have reported profits on the year 2022-2023 for the whole year (1 January 2022 – 31 December 2022).

Following the introduction of Basis Period Reform, the new tax year basis applies, meaning you will need to report profit up to the tax year end even if your accounting year ends at a different time (1 January 2024 to 5 April 2024 and 6 April 2024 to 31 December 2024). 

Navigating the transition period

Although the legislation came into force on 6 April 2023, HMRC granted a transition period (6 April 2023 – 5 April 2024) for those affected. 

When reporting profit up to 5 April 2024 (from the day after your accounting year end in 2022 and 2023) you will report profits covering more than one year and may need to apportion two sets of accounts to estimate your profits for the year. 

Example: If you have an accounting year end date of 31 December 2022, you will report profit from 1 January 2023 to 5 April 2024 in the 2023-24 tax year. 

If you report profit for a period covering more than 12 months, the excess is known as ‘transition profit’ and can be reduced using Overlap Relief. Any remaining profit will be spread across the following years, up to the tax year 2027-28, increasing trading profits by 20% per year for a ‘smooth transition’.

Reporting from 6 April 2024

From 6 April 2024, you will need to report profits earned in the tax year the return relates to. 

If your accounting year end date is between 6 April and 30 March, you will need to report profit from two sets of accounts, adding together profits from 6 April to your business account year end date and the start of your business year to 5 April the following year. 

Example: If you have an accounting year end date of 31 December 2024, you will need to report profit from both 6 April 2024 – 31 December 2024 and 1 January 2025 – 5 April 2025. 

If you would like to discuss the Basic Period Reform changes with a member of our team, please contact us.  

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