A major shift that changes how profits are calculated and reported.
Here's what it means for you.
What Is Basis Period Reform?
Basis Period Reform is one of the biggest changes to affect sole traders and partnerships in recent years.
From 2024/25 onwards, all unicorporated businesses must report profits using the tax year basis (6 April - 5 April), rather than their own accounting year.
This means your accounting year and the tax year must now align, even if your business has always used a different year-end.
Who Does It Affect?
This reform applies to
- Sole Traders
- Partnerships
- Landlords with trading income
- Anyone whose accounting year does not end between 31 March or 5 April.
If your year-end is already 31 March or 5 April, the impact will be minimal.
If not, you will experience a transition year.
What is the Transition Year?
The 2023/24 tax year is the transition year. During this period HMRC requires you to:
- Report profits from your normal accounting period, plus
- Additional profits to bring you up to 5 April 2024
This can create transition profits, which may increase your taxable income for the year.
HMRC will allow you to spread these additional profits over five years, helping ease cashflow pressure.
How to Calculate Your Transition Profit
You'll need to:
- Work out your usual 12 month accounting profit
- Add the extra months needed to reach 5 April.
- Deduct any overlap relief you may have
- Spread the remaining transistion profit over up to five years.
If you are unsure how to calculate this, or whether you have overlap relief available, it is best to speak to an accountant as the numbers can be complex.
What This Means For Your Cashflow
Because transition profits can increase taxable income, you may see:
- Higher tax bills
- Higher payments on account
- A need to adjust budgeting and cashflow planning.
Spreading the transistion profit over five years can help smooth the impact.
How to Prepare
To stay compliant and avoid surprises:
- Review your accounting year-end
- Check whether you have overlap relief
- Estimate your transition profit
- Plan for potential cashflow impacts
- Keep accurate records for the transition period.
If you are unsure, professional guidance can save you time, stress and unexpected tax bills.
Need clarity on how this affects you?
RipSol provides regulated, practical support for sole traders and small businesses across the South Coast.
If you would like help understanding your transition profit or planning for the year ahead, we're here to guide you.