Quick answer
Basis period reform means sole traders and partners are now taxed on profits arising in the tax year (6 April to 5 April), rather than on accounting-year profits. 2023/24 was the transition year, and transition profits are spread over up to five tax years.
Updated October 2026 · Figures based on the 2026/27 tax year
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What basis period reform changed
Before basis period reform, sole traders and partners were taxed on the profits of the accounting year that ended in the tax year, so a business with a 30 June year end was taxed on the year to 30 June falling within the tax year. From the 2024/25 tax year, profits are taxed on a tax year basis: the profits of the period 6 April to 5 April. A business with a 31 March or 5 April year end is largely unaffected, but businesses with other year ends need to apportion profits from two sets of accounts. HMRC explains the current position in its guidance on basis period reform.
The 2023/24 tax year was the transition year. Its basis period covered everything from the end of the previous basis period up to 5 April 2024, which for many businesses meant more than 12 months of profit. The extra profit, called transition profit, is reduced by any overlap relief built up when the business started, and is by default spread evenly over five tax years, from 2023/24 to 2027/28, unless you elected to be taxed on all of it in 2023/24. Check current HMRC guidance for the details of your own position.
Worked example: a 30 June year end
This is an illustrative, simplified example using whole months. A sole trader has a 30 June year end. Profit for the year to 30 June 2024 was £40,000 and for the year to 30 June 2025 was £48,000.
| Step | Working | Amount |
|---|---|---|
| Profit for 6 April 2024 to 30 June 2024 | 3/12 x £40,000 | £10,000 |
| Profit for 1 July 2024 to 5 April 2025 | 9/12 x £48,000 | £36,000 |
| Taxable profit for 2024/25 | £10,000 + £36,000 | £46,000 |
The same approach applies to later years. In practice, the apportionment can be done by days or months, whichever is reasonable and applied consistently.
Transition profit is handled separately. Suppose the transition profit arising in the 2023/24 transition year was £9,000 and the sole trader held overlap relief of £3,000. The taxable transition profit is £9,000 − £3,000 = £6,000, spread by default at £1,200 a year across 2023/24 to 2027/28. So in 2024/25, the return shows the apportioned profit of £46,000 plus the £1,200 transition instalment, giving £47,200 for tax purposes. Each year’s instalment appears on that year’s return until the five years are complete.
Why the reform matters now
The change is the bridge to Making Tax Digital for Income Tax, which starts from 6 April 2026 for people with qualifying income over £50,000, then over £30,000 from April 2027 and over £20,000 from April 2028. Under that regime, digital records and quarterly updates are tied to the tax year, so a 31 March or 5 April year end keeps things simple. Some businesses decide to change their accounting date to 31 March or 5 April for that reason. Others stay with their existing date and accept the apportionment each year, which can cause provisional figures at filing time.
Provisional figures
If the accounts for the second year are not finished by the time you file, you may need to use a provisional figure for part of the profit and then amend the return later, within 12 months of the 31 January deadline. It is better to complete accounts early where possible.
Common mistakes
- Forgetting that apportionment now uses two sets of accounts for most non-April year ends.
- Ignoring the transition profit entry on each year’s return.
- Not claiming overlap relief that is due.
- Choosing to bring all transition profit into 2023/24 without checking the impact on the Personal Allowance and tax bands.
- Filing with estimates and not amending afterwards.
Checklist
- Confirm your accounting year end and whether you changed it.
- Find your overlap relief figure from earlier returns.
- Work out the apportionment for the current year.
- Check your transition profit instalment is on the return.
- Keep working papers for five years after the 31 January deadline.
Related guides: choosing a business year end date, key tax changes for 2026/27, how to calculate self-employed profit and the partnership tax return.
SATR is a trading style of Accotax. Our qualified UK accountants can handle the apportionment and file online for a fixed fee from £199 + VAT.
This is general information, not personal tax advice.
Partners, new businesses and ceasing to trade
The same tax year basis applies to partners, who are taxed on their share of partnership profits for the tax year, so the partnership return needs to show profit allocated for the period to 5 April. New businesses are now simpler in one respect: the first tax year’s profit is taxed from the start date to the following 5 April, and the second year uses the tax year itself, which avoids the long overlap periods that used to arise — if you are starting out, register for Self Assessment promptly so HMRC issues your UTR in time. For a business that stops trading, the final tax year is taxed up to the date of cessation, and any unused overlap relief that remains can normally be set against the final profits.
If you are unsure how the rules apply to your own business, especially where there has been a change of year end or a break in trading, take advice rather than guessing. The figures carried over from earlier years are the part most often lost, so keep a copy of every return and overlap relief calculation.
Frequently asked questions
For more answers on deadlines and filing, browse our Self Assessment FAQs.
Do I need to change my accounting date?
No, but a 31 March or 5 April year-end makes reporting simpler.
Does this affect payments on account?
Yes, higher transition profits can increase payments on account.
Does basis period reform affect me if my year end is 31 March?
Very little. A year end of 31 March or 5 April lines up closely with the tax year, so little or no apportionment is needed.
Can I change my accounting date to avoid apportionment?
Yes, many businesses choose 31 March or 5 April, but there are rules on changing the date, so check current HMRC guidance first.
What if I cannot finish my accounts before the return is due?
Use provisional figures where necessary and amend the return afterwards. You can amend within 12 months of the 31 January filing deadline.
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The Bottom Line
Since 2024/25, sole traders and partners are taxed on profits arising in the tax year itself — 6 April to 5 April — so if your year end is not 31 March or 5 April, you must apportion profits from two sets of accounts every year. Do not forget the transition profit instalments running from 2023/24 to 2027/28, and claim any overlap relief you are due. A 31 March or 5 April year end remains the simplest setup, especially with Making Tax Digital for Income Tax on the way.
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