Basis Period Reform

What does this mean for me and what do I need to do?

The basis period reforms are changes to how self-employed individuals report their income for tax purposes. Traditionally, self-employed people calculated their profits based on their accounting year, which could vary from person to person. This often made things confusing and complicated, especially when it came to understanding what income was taxable in any given year and the difference between the accounting year and the tax year.

Under the new rules, the aim is to create a more straightforward system. From 2024 onwards, the basis period for most self-employed individuals will align with the tax year, which runs from April 6 to April 5 of the following year. This means that instead of reporting profits from their own accounting year, self-employed individuals will report their profits based on the tax year. This change is designed to simplify tax reporting and make it easier for everyone to understand what they owe. Effectively this will mean moving year ends to be either the 05th April or the 31st March which may be easier.

For some, this may mean that more than 12 months of profits fall to be taxed in the 2023/24 tax year. However, to help with this transition, there’s a special adjustment for the 2023/24 tax year that’s being put in place. It will allow any ‘additional’ profits over the 12 months to be spread over the next 5 tax years, to ease cashflow for those affected. This adjustment aims to make the switch smoother and fair for everyone.

Overall, these reforms are intended to make tax reporting simpler and clearer for self-employed individuals. By aligning the basis period with the tax year, the government hopes to reduce confusion and make it easier for people to keep track of their finances and ease nicely into the new Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) and the quarterly filing requirements, which comes into play from April 2026. If you’re self-employed, it’s a good idea to familiarise yourself with these changes to make the tax process as smooth as possible! Any questions please do get in touch with our team at GTP who’d be happy to chat it through.

Contact us if you have any questions