What is basis period reform for the self-employed?
Basis period reform moved sole traders and partners to a tax year basis from 2024 to 2025, with 2023 to 2024 as the transition year. A business's profit for a tax year is the profit arising in that tax year, whatever its accounting date. Extra transition profit can be taxed over five years.
Figures checked against gov.uk on . General information, not tax advice.
What changed
Before the reform, a business could be taxed on the profit of an accounting year ending in the tax year. Under the tax year basis, profit is allocated to 6 April to 5 April, so a business with a 30 June or 31 December year-end apportions its profit between tax years. The change mainly affects businesses with accounting dates other than 31 March or 5 April.
The transition year
In 2023 to 2024 the basis period was extended, for businesses not already aligned, up to the end of that tax year. The extra profit this creates is called transition profit. gov.uk's policy paper says taxpayers can pay tax on 20% of it each year over five years, or elect to accelerate any amount of it.
A new business starting on or after 6 April 2024 is taxed on the tax year basis from the start.