Basis period reform – what do I need to do?

The basis period reform will affect you, as an unincorporated business, as your accounting year end isn’t 31st March or 5th April. The basis period reform will affect how you tax your income from the 2023/24 tax year onwards. 

In the 2022/23 tax year, you’ll tax profits arising from 1st October 2021 to 20th September 2022 as this is the account year that finishes in the 2022/23 tax year. This is how you’ve always accounted for profits for tax. 

In the 2023/24 tax year, you’ll need to tax additional profits so that your accounting profits being taxed match the end of the tax year. You will be able to deduct any overlap profits brought forward in this year. 

Overlap profits relate to a period of trading when the business commenced where profits were taxed twice. These should have been recorded on your individual tax return but if they are not and you are struggling to find records of your overlap profits you can contact HM Revenue & Customs. 

For more detail on how your profits will be attributed to tax years, see our article which gives an example. 

You will need to speak to your accountant to discuss whether you wish to change your accounting year end so that it matches the tax year, which may make accounting simpler. There are advantages and disadvantages to changing the year end that you need to consider. 

Furthermore, at the time of submitting your 2023/24 tax return (by 31st January 2025) you will need to have prepared your accounts for the year ended 30th September 2024 so that you can use the pro-rata profits in your tax assessment. Otherwise, this amount will need to be estimated and you should plan for this with your accountant to ensure deadlines are met. 

If you need guidance with your accounting needs, we are here to help. Call us today on 0131 665 0771 or complete our online enquiry form. 

Date published 28 Sep 2023

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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