The income tax basis period reform in the UK is a major change to the way that self-employed individuals and partnerships are taxed on their business profits. From the 2024/25 tax year onwards, businesses will be taxed on the profits generated between the start and end of the tax year, regardless of the year-end that the business prepares its accounts to.
This change is being made to simplify the basis period rules and to prevent the creation of further overlap relief. Overlap relief is a tax relief that is available to businesses that have two or more overlapping basis periods. It can be complex to calculate and can lead to businesses being taxed on their profits twice.
The basis period reform will make it easier for businesses to calculate their taxable profits and will help to ensure that they are taxed fairly. It will also make it easier for businesses to switch to a different accounting period without incurring any tax penalties.
Key Changes
Some of the key changes that will be introduced under the basis period reform:
- All businesses will be taxed on the profits generated between the start and end of the tax year, regardless of their accounting period.
- Businesses will be able to choose to use a 12-month accounting period that ends on 31 March, 5 April, or any other day in the tax year.
- Businesses that change their accounting period will be able to use a transitional basis period to smooth out the transition.
- Businesses that have unused overlap relief will be able to carry it forward and use it to reduce their tax liability in future years.
The basis period reform is a complex change, but it is important for businesses to understand the implications for them. If you are self-employed or a partner in a business, you should speak to your accountant to discuss how the basis period reform will affect you.
Here are some additional resources that you may find helpful:
- GOV.UK: Basis period reform: https://www.gov.uk/government/publications/basis-period-reform
- Low Incomes Tax Reform Group: Basis period reform: https://www.litrg.org.uk/tax-guides/self-employment/working-out-profits-losses-and-capital-allowances/basis-period-reform
- Association of Taxation Technicians: Basis period reform and averaging: https://www.att.org.uk/basis-period-reform-and-averaging
UWM Accountants can help you deal with the changes in basis period reform. To find out how a personal accountant could benefit you, get in touch today.
