Basis Period Reform: What Changed from April 2024 (and Who Needs to Act)

The UK’s Basis Period Reform represents one of the biggest changes to how self-employed individuals and partnerships are taxed in many years. From April 2024, the long-standing rules that allowed businesses to be taxed based on their accounting year-end have been replaced with a new tax year basis.

For many sole traders and partnerships, this means changes to how profits are calculated, reported, and planned. While the reform is designed to simplify the system in the long term, it introduces short-term complexity—especially for those with accounting periods that do not end on 31 March or 5 April.

In this guide, we explain what has changed, who is affected, what records you’ll need, what to discuss with your accountant, and how to navigate the new system from 2024/25 onward.

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What Is Basis Period Reform?

Before April 2024, unincorporated businesses were generally taxed on the profits of their accounting period ending in the tax year. For example, if your accounts ended on 30 June, your tax return for 2023/24 would include profits from the year ended 30 June 2023.

Under Basis Period Reform, this approach has been replaced. From 2024/25 onwards, unincorporated businesses are taxed on profits arising in the tax year itself (6 April to 5 April), regardless of their accounting date.

This is known as the tax year basis.

Why Was This Introduced?

The reform aims to:

• Align profit reporting with the tax year
• Simplify Making Tax Digital (MTD) for Income Tax
• Reduce complexity caused by overlapping basis periods

In the long run, most businesses will find reporting more consistent, but the transition requires careful handling.

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Move to the “Tax Year Basis” Explained

Under the new rules:

• Each tax return must include profits that fall within the tax year
• If your accounting year already ends on 31 March or 5 April, little changes
• If your accounting year ends on another date, profits must be apportioned

Example

If your accounting year runs from 1 July to 30 June:

• Your 2024/25 tax return must include:
  • Profits from 1 July 2024 to 5 April 2025
  • Plus a proportion of profits from the following accounting year

This often means using estimates initially and finalising later.

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Who Is Impacted?

You are likely affected by Basis Period Reform if you are:

• A sole trader
• A partner in a partnership
• Using an accounting year-end that is not 31 March or 5 April

Businesses already using a 31 March or 5 April year-end will see minimal change.

Commonly Affected Businesses

• Retailers using calendar year ends
• Contractors with mid-year year-ends
• Property businesses with bespoke accounting dates

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Transitional Rules and Overlap Relief

The 2023/24 tax year was a transition year, designed to move businesses into the new system.

During transition:

• Profits from the normal basis period
• Plus additional profits to align with the tax year
• Minus any available overlap relief

Overlap relief arises where profits were previously taxed twice under the old rules. Many long-established businesses have overlap relief available, but may not know the amount.

Using overlap relief correctly can significantly reduce the transitional tax bill.

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What Records You’ll Need

The Basis Period Reform underscores the importance of accurate, up-to-date records.

You should ensure:

• Complete income and expense records
• Clear separation between business and personal transactions
• Copies of past tax returns (to identify overlap relief)
• Accounting records covering multiple periods

With Making Tax Digital for Income Tax approaching, digital record-keeping is strongly recommended.

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What to Discuss with Your Accountant

Early discussions with your accountant can prevent costly surprises. Key topics include:

1. Accounting Year-End Review

Should you change your year-end to 31 March or 5 April to simplify future reporting?

2. Overlap Relief Position

How much overlap relief is available, and how will it be used?

3. Transitional Profit Planning

Can excess profits be spread or managed efficiently?

4. Cash Flow Impact

Will the transition increase your tax bill temporarily?

5. Interaction with MTD for Income Tax

How will your records feed into quarterly digital reporting?

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Practical Timeline: 2024/25 Onward

2024/25 Tax Year

• First year fully under the tax year basis
• Profits must align with 6 April–5 April
• May involve estimates and later adjustments

2025/26

• Second year under the new system
• Processes should become more stable
• Strong alignment with MTD preparations

2026/27 and Beyond

• Many affected businesses will also enter MTD for Income Tax
• Digital records and quarterly updates become standard

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Planning Tips to Reduce Risk

• Consider changing your accounting date
• Keep bookkeeping up to date throughout the year
• Set aside funds for potential higher transitional liabilities
• Seek advice before making major structural changes

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Common Mistakes to Avoid

• Ignoring the reform
• Assuming it does not apply
• Not checking overlap relief
• Leaving planning until after year-end
• Using estimates without later corrections

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How IR Advisory Helps

IR Advisory supports sole traders and partnerships with:

• Basis period reviews
• Year-end change advice
• Overlap relief identification
• Transitional profit planning
• Ongoing bookkeeping and compliance support

We ensure your transition to the tax year basis is smooth, accurate, and fully compliant.

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Final Thoughts

Basis Period Reform changes when profits are taxed, not whether they are taxed, but timing can have a major impact on cash flow and planning.

Understanding the new rules and acting early will protect your business from unnecessary stress and unexpected liabilities.

If you would like tailored advice on how Basis Period Reform affects you, IR Advisory is here to help.