Basis period reform

HM Revenue & Customs (HMRC) is bringing in a reform to change the way those in self-employment or partnerships report their income from the tax year ended 5th April 2025 onwards.

The Objective

The objective of this reform is to ensure that all self-employed traders follow a simpler, fairer and a more transparent set of rules in allocating profits to tax year. This includes individuals with a profession or vocation; partners in trading partnerships; other unincorporated entities with trading income, such as trading trusts and estates and non-resident companies with trading income charged to Income Tax.

Who does this affect?

This affects those traders who currently do not have an accounting period falling between 31st March to 5th April.

As a result of the reform, HMRC is allowing available overlap profits in past years to be relieved in full during the transitional year. Overlap profits are profits where tax may have been charged twice due to having an accounting period which is different to the tax year or where the basis period has previously been changed. The option to relieve overlap profits is only available in the year of cessation, however, due to the basis period reform HMRC is allowing all overlap profits for affected businesses to be relieved in the transition year of 23/24.

Detailed guidance has been issued to ensure the changes required are included within the year ended 5th April 2024, also known as the transitional year. See here for HMRC’s helpsheet:

Should you require assistance in understanding the transition and to ensure your tax affairs are sorted accordingly please contact your local Perrys branch.