Basis Period Reform

Basis Period Reform

The rules dictating when the trading profits of unincorporated businesses are subject to income tax are changing.

From April 2024, the existing basis period rules known as the ‘current year basis’, will be abolished and replaced with a tax year basis of assessment. Under the tax year basis, businesses will be subject to tax on their profits arising in the tax year, regardless of their accounting period end.

Tax year 2023/24 will act as a transitional year, to switch over from the current year basis to the new tax year basis.  In this transitional year, the basis period will be made up of two different elements:

  • A 'standard part' being the normal basis period (i.e. the 12 months following the end of the basis period for 2022/23); and
  • A 'transition part' running from the end of the standard part to 5 April 2024 (or 31 March 2024 if that date is used).

In effect, businesses will be required to bring into account an additional amount of profits running from the end of their normal basis period to the end of the 2023/24 tax year.

Two measures are allowed to reduce the impact of this:

  • businesses can deduct any overlap relief they may have from the additional transition part profits; and
  • any remaining transition profits can then be spread over a period of up to five years.

Get in touch

If you would like further information on these areas please contact one of the team.

Phone: 01508 333040