Basis period reform: the last years of transition profit
Since 2024/25, the self-employed and partners are taxed on profits for the tax year itself. Many are still paying tax on transition profit, spread over five years to 2027/28.
Until 2023/24, sole traders and partners were taxed on the profits of the accounting year ending in the tax year. Since then they are taxed on the profits arising in the tax year itself. Businesses with a year end other than 31 March or 5 April made the move in 2023/24 and were taxed on extra transition profit.
The spread
Transition profit, after any overlap relief, is spread over five tax years, from 2023/24 to 2027/28, unless you chose to accelerate it. That means two more years of extra taxable profit for many, ending with the 2027/28 return. Keep a record of the amount left to spread.
Transition profit, spread equally
- 2023/24One fifth taxed (or more, if you chose)
- 2024/25One fifth
- 2025/26One fifth
- 2026/27One fifth
- 2027/28The last fifth
Should you change your year end?
If your accounts end on, say, 30 April, each tax return now needs profits apportioned from two sets of accounts, with estimates if the later set is not ready. Moving to 31 March or 5 April makes returns simpler, and will make quarterly reporting under Making Tax Digital easier when partnerships join.
This insight is general information, not advice for your circumstances. Talk to us before acting on it.