The upcoming basis period reform will only affect some Sole Traders and Partnerships and the changes are due to come into effect from 6th April 2024. If you are a sole trader or partnership and currently have an Accounting period end date between 31st March - 5th April, these changes will not affect you (unless you have unused overlap relief).
The Basis Period Reform will mean all unincorporated businesses must calculate business profits on a tax year basis (6th April - 5th April) from 6th April 2024, regardless of your previous accounting period end date. The 22-23 tax year will be a "transition period", meaning those affected may report profits of more than 12 months in their 23-24 tax returns due to these changes.
Those with an Accounting period ending between 31st March - 5th April
If you have an Accounting period end date between 31st March - 5th April (inclusive), HMRC will treat your end date as 5th April under the "late accounting date rules". This means you will continue to produce your Accounts/profits based on your normal period end date, without the need to consider any transition rules. For example, if your period end date is 31st March, you would continue to report profits for 1st April - 31st March on your Self Assessment (apart from during the year trading ceases).
Those with an Accounting period end date other than 31st March - 5th April
If your Accounting period end date falls outside of the period above, you will be required to report your profits on a tax year basis from the 24/25 tax year. You will also need to consider the "transition period" rules for the 23/24 tax year. This will mean producing two sets of Accounts based on your Accounts period end date and apportioning the profits on a pro-rata basis in order to comply with the new basis period rules and report the correct profit figures on your tax return (based on a period of 6th April - 5th April).
Example:
Leonard is a mechanic with a period end date of 31st July. For the 24/25 tax year, Leonard must:
Prepare Accounts for two Accounting periods (1st August 2023 - 31st July 2024, and 1st August 2024 - 31st July 2025
Apportion the profits from both sets of Accounts on a pro-rata basis to report on his 24/25 Self Assessment return as follows:
Profit/Loss for 6th April 2024 - 31st July 2024 from first set of Accounts
Profit/Loss for 1st August 2024 - 5th April 2025 from second set of Accounts
Filing/payment deadlines will remain the same for Leonard. As the second set of Accounts need to be produced before the profits can be apportioned, Leonard may have less time to prepare and file his tax return. For this reason, he may opt to change his Accounts period end date to 5th April to streamline the process.
If you require any further information on these upcoming changes, please feel free to contact us.