Basis period reform: a practical guide for UK practices

Published Thursday 11 June 2026

Table of contents

• What basis period reform means for your practice
• How the tax year basis works
• The 2023/24 transitional year
• Which businesses are affected
• Provisional figures and estimated profits
• Basis period reform and Making Tax Digital
• Simplify basis period reporting with Xero
• FAQs on basis period reform

Key takeaways

• Basis period reform is now in effect. From the 2024/25 tax year, all sole traders and partnerships report profits on a tax year basis (6 April to 5 April), replacing the old accounting period basis.
• The 2023/24 transitional year required careful handling. Clients with non-aligned accounting dates had longer basis periods, and the final opportunity to claim overlap relief was on their 2023/24 return.
• Transition profits can be spread over up to five years. Where the transitional year created higher tax bills, HMRC allows spreading of transition profits, with Class 4 National Insurance implications for each year of the spread.
• Making Tax Digital for Income Tax is closely connected. The tax year basis aligns with MTD for ITSA requirements, which apply from April 2026 for businesses with gross income over £50,000.

What basis period reform means for your practice

Basis period reform changed how unincorporated businesses report profits for Income Tax. Previously, sole traders and partnerships used their own accounting period as the basis period. From the 2024/25 tax year, all unincorporated businesses now report on the tax year running from 6 April to 5 April.

The reform affects clients with accounting dates that don't align with the tax year. If your clients already use a 31 March to 5 April year end, the change has minimal impact. For those with non-aligned dates, you'll need to apportion profits from the accounting periods that fall within each tax year.

In practice, this means your team needs a clear process for identifying affected clients, calculating apportioned profits, and managing any remaining transition profit spreading. It's also worth reviewing whether clients with non-aligned dates should consider changing their accounting date to simplify future reporting.

How the tax year basis works

Under the tax year basis, every sole trader and partnership reports profits for the period from 6 April to 5 April, regardless of their chosen accounting date. This replaced the previous system where each business used its own accounting period as the basis for Income Tax.

Clients whose accounting year end falls between 31 March and 5 April don't need to apportion profits. HMRC treats these dates as tax year-aligned, so the full accounting period profits are reported as the tax year profits.

Apportioning profits for non-aligned accounting dates

For clients who've kept a different accounting date, you'll need to apportion profits from two accounting periods that overlap with the tax year. The apportionment is calculated on a time basis.

For example, a client with a 31 December year end reports 2024/25 profits as follows:

• First portion: profits from 6 April 2024 to 31 December 2024 (270 days of the year ending 31 December 2024).
• Second portion: profits from 1 January 2025 to 5 April 2025 (95 days of the year ending 31 December 2025).

You calculate each portion by dividing the relevant number of days by the total days in the accounting period, then multiplying by the period's total profit.

The 2023/24 transitional year

The 2023/24 tax year served as the transition from the old accounting period basis to the new tax year basis. Clients with non-aligned accounting dates had a longer basis period in this year, covering their normal accounting period plus the additional months needed to reach 5 April 2024.

Calculating transition profits

Transition profits are the extra profits that arose from the extended basis period in 2023/24. These sit on top of the standard profits for your client's normal accounting period.

Using the 31 December year end example: the standard profits cover 1 January 2023 to 31 December 2023. The transition profits cover 1 January 2024 to 5 April 2024 (or 31 March 2024, as HMRC treats 31 March to 5 April as aligned).

Spreading transition profits over up to 5 years

HMRC allows transition profits to be spread equally over up to five tax years, starting from 2023/24. This helps manage the cash flow impact of a larger tax bill in the transitional year. Your client can also elect to accelerate the spread by including more of the transition profit in an earlier year's return.

Bear in mind that spread transition profits attract Class 4 National Insurance contributions in each year they're reported. Factor this into your cash flow modelling when advising clients on whether to spread or accelerate.

Claiming overlap relief

Overlap relief reduced the transition profit figure, offsetting profits that had already been taxed under the old rules. The final opportunity to claim overlap relief was on the 2023/24 tax return. If your client didn't have an overlap relief figure on record, HMRC's overlap relief calculator could help establish the correct amount.

If the overlap relief figure exceeded the transition profit, the excess could be set against other trading profits in 2023/24. Overlap relief is no longer available for returns from 2024/25 onwards, so this was a one-time claim.

Which businesses are affected

Basis period reform applies to all unincorporated businesses reporting trading income for Income Tax purposes. The main groups affected are sole traders and partnerships with accounting dates that don't fall between 31 March and 5 April.

• Sole traders with non-aligned accounting dates now apportion profits across two accounting periods each tax year. HMRC estimates around 7% of sole traders are affected.
• Partnerships, including limited liability partnerships, are more significantly affected, with around 33% having non-aligned accounting dates according to the same HMRC assessment. Each partner needs their share of apportioned profits for their individual tax return.
• Other unincorporated entities with trading income, such as trading trusts and non-resident companies charged to Income Tax, also fall within the reform.
• New businesses starting from 6 April 2024 automatically use the tax year basis from the outset, with no complex opening year rules.

Limited companies aren't affected by basis period reform. The change applies only to businesses that pay Income Tax on trading profits, not Corporation Tax.

Partnership-specific considerations

If a partnership has kept a non-aligned accounting date, each partner's share of the apportioned profits needs to appear on their personal tax return. This creates additional coordination between the partnership return and individual partner returns.

Where partnerships elected to spread transition profits, each partner's spread amount feeds into their personal tax computation. As an adviser, it's worth running cash flow projections for individual partners to model the impact of spreading versus accelerating.

Provisional figures and estimated profits

When a client's accounting date falls later in the tax year, you may not have final figures for the second accounting period at the time of filing. In these cases, you'll need to submit provisional figures on the tax return and amend them once the actual figures are available.

HMRC expects provisional figures to be reasonable estimates based on available information. Mark the return as containing provisional figures, and file an amendment once the final accounts are complete.

Managing provisional filings in practice

Set up a tracking system for clients who've filed with provisional figures. You'll need to monitor when their final accounts are ready and submit the amended return promptly. Late amendments could result in interest charges if additional tax is due.

Consider whether it's worth advising clients with late accounting dates to change to a 31 March or 5 April year end. This eliminates the need for apportionment and provisional figures entirely, simplifying the annual reporting cycle for both your practice and your clients.

Basis period reform and Making Tax Digital

Basis period reform and Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) are closely linked. The shift to a tax year basis aligns the reporting period with MTD's quarterly submission requirements, which also follow the tax year.

MTD for ITSA is being introduced in phases based on gross income thresholds:

• April 2026: businesses with gross income over £50,000 must comply.
• April 2027: the threshold drops to £30,000.
• April 2028: the threshold drops to £20,000.

For your practice, this means clients who've already moved to the tax year basis are better prepared for MTD quarterly reporting. The alignment removes the complexity of mapping quarterly updates to a non-standard accounting period.

If you haven't already, now is a good time to review which clients will fall within each MTD threshold and start preparing their record-keeping systems. Cloud accounting software can simplify both the apportionment calculations under basis period reform and the digital record-keeping requirements under MTD.

Simplify basis period reporting with Xero

Basis period reform has added complexity to the annual reporting cycle for practices with affected clients. From apportioning profits to tracking spread transition amounts and preparing for MTD, having the right tools in place makes a real difference.

The Xero Partner Programme gives you access to practice-level tools, including Xero Tax at higher tiers, alongside training and support to help your team stay on top of compliance changes. Join the partner programme to see how it can support your practice.

FAQs on basis period reform

Here are some frequently asked questions about basis period reform that address common practitioner queries.

Does basis period reform affect limited companies?

No. The reform only applies to Income Tax, so limited companies paying Corporation Tax are unaffected. If a client runs both a sole trade and a limited company, only the sole trade profits need to be reported on the tax year basis. Similarly, if a sole trader incorporates mid-year, the final sole trade period falls under basis period reform rules, but the new company doesn't.

How do I get my client's overlap relief figure?

Check your client's tax returns from the opening years of their business, as that's when overlap profits first arose. If earlier returns have been lost or were handled by a previous adviser, you can request the figure from HMRC directly. Start that process early, as HMRC response times can vary. Since the final claim was on the 2023/24 return, any unclaimed overlap relief is now permanently lost.

What if my client's accounts aren't ready by the filing deadline?

File the return with provisional figures and submit an amendment once final accounts are ready. Be aware that if the amendment increases the tax due, HMRC charges interest from the original payment deadline, not from the amendment date. Set a diary reminder for each provisional filing so amendments don't get overlooked during busy periods.

How does basis period reform relate to Making Tax Digital?

Both reforms use the tax year as the reporting period, so preparing for one helps with the other. If your clients haven't yet aligned their accounting date with the tax year, consider doing so before MTD applies to them. Aligning now means fewer adjustments when quarterly digital submissions begin, and it avoids the complexity of mapping quarterly updates to a non-standard accounting period.

Can my client change their accounting date to avoid apportioning profits?

Yes. Clients can change their accounting date to 31 March or 5 April to align with the tax year. This removes the need for annual profit apportionment and simplifies reporting. The decision should weigh the administrative savings against any commercial or practical reasons for keeping the current date.