Basis period reform scrapped the old "current year basis" and moved every unincorporated business to a tax year basis. From 2024/25 onwards, your taxable profit is the profit arising between 6 April and 5 April, whatever your accounting date. If your year end is not already 31 March or 5 April, you must apportion your accounts across the tax year, and if you spread your transition profit, a slice of it is still taxable in 2026/27.
The rules are already in force, the one-off transition happened in 2023/24, and the main job now is keeping your apportionment right and remembering the leftover transition profit each year.
What is basis period reform?
Basis period reform is HMRC's change to how trading profits are assessed for income tax. Sole traders and partnerships used to be taxed on the profits of the accounting year ending in the tax year. That created overlap profit, overlap relief, and awkward opening- and closing-year rules.
From the tax year 2024/25 the system is the tax year basis: your profit or loss is whatever arises in the tax year itself. The old basis period rules are gone, no new overlap relief can be created, and you no longer have to tell HMRC when you change your accounting date.
Who does basis period reform affect?
It affects you if you are:
- a sole trader with self-employment income, or
- a partner in a trading partnership or LLP,
and your accounting year end is not 31 March or 5 April.
If you already draw up accounts to 31 March or 5 April, you are treated as aligned and very little changes for you. Companies are unaffected, basis period reform is an income tax measure only.
The 2023/24 transition year explained
2023/24 was the one-off transition year. Businesses with a non-tax-year accounting date had to report profit in two parts:
| Component | Period taxed |
|---|---|
| Standard part | The 12 months of accounts ending in 2023/24 |
| Transition part | From the day after that year end up to 5 April 2024 |
Any overlap relief you had carried forward was set against the transition part. Whatever remained after overlap relief is your transition profit.
Example: a 30 April year end meant reporting the year to 30 April 2023 plus 11 months to 5 April 2024, almost 23 months of profit in one return, reduced by overlap relief.
Transition profit spreading: why 2026/27 still matters
To soften the cash-flow hit of taxing extra months, HMRC lets you spread the transition profit over five tax years, from 2023/24 to 2027/28. By default, one-fifth (20%) is added to your taxable profit each year.
That makes 2026/27 year four of the spread. If you had transition profit in 2023/24, another 20% slice is taxable on your 2026/27 return, even though your day-to-day accounts look normal. It is easily forgotten.
You can also elect to accelerate the spread, bringing more (or all) of the remaining transition profit into charge early. This is sometimes worth doing if a year falls below the higher-rate threshold of £50,270 and you have headroom against the £12,570 personal allowance. Handled well, spreading and accelerating together can keep you out of the higher and additional-rate (over £125,140) bands. This is exactly the kind of timing call our tax advisory services are built around.
What you must do now
- Confirm your accounting date. If it is not 31 March or 5 April, you must apportion two sets of accounts into each tax year going forward.
- Apportion correctly. For 2026/27, blend the relevant days from your accounts straddling 6 April 2026 to 5 April 2027. HMRC accepts apportionment on a daily or monthly basis, be consistent.
- Track remaining transition profit. Add the 2026/27 slice, and remember the final slice falls in 2027/28.
- Consider changing your year end. Many businesses move to 31 March or 5 April to stop apportioning every year. You no longer need to notify HMRC of the change.
- Mind the knock-on effects. A higher apportioned profit can affect your payments on account, child benefit charge, pension annual allowance taper and student loan repayments.
Should I change my accounting date to 5 April?
For most sole traders, yes, it removes apportionment for good and makes the return far simpler. The trade-off is a one-off longer or shorter set of accounts in the year you switch. If your business is seasonal or you have commercial reasons for a particular year end, weigh it up first.
How does basis period reform interact with Making Tax Digital?
Aligning to the tax year also sets you up for Making Tax Digital for Income Tax, which uses tax-year-based quarterly updates. Moving to a 5 April date removes a layer of reconciliation later.
Common basis period reform mistakes
- Forgetting the annual transition slice, easily missed, because nothing in the current accounts flags it.
- Losing track of overlap relief before it was used in 2023/24. If you never claimed it, that relief may now be lost.
- Double-apportioning, or mixing daily and monthly methods between years.
- Ignoring payments on account rising on the back of inflated transition-year profit.
For more on Self Assessment deadlines, penalties and allowances, see our FAQ.
Frequently Asked Questions
Do I still have basis periods in 2026/27?
No. Basis periods were abolished from 2024/25. Your profit is now whatever arises in the tax year (6 April to 5 April), apportioned from your accounts if your year end differs.
What is transition profit, and is it still taxable now?
Transition profit is the extra profit assessed in 2023/24 after overlap relief. By default it is spread over five years to 2027/28, so a 20% slice is still taxable in 2026/27 unless you elected to accelerate it.
I have a 31 March year end, does anything change for me?
Very little. A 31 March (or 5 April) year end is treated as aligned to the tax year, so you avoid apportionment and had no transition profit to spread.
Should I change my accounting year end?
Usually it is worth moving to 31 March or 5 April to end annual apportionment, and you no longer need to notify HMRC. Check the one-off impact in the year of change first.
You can read HMRC's official overview on the basis period reform guidance page.
Not sure how much transition profit you have left, or whether to accelerate it before 2027/28? We will work out your apportionment, check your overlap relief was used, and time the remaining slices to keep your tax bill as low as the rules allow. Get in touch with Zmartly and we will take it from here.
