Is basis period reform really over and done with?

Transition recap

If you’re a sole trader or member of a partnership and your business was trading in 2022/23, you were required to align your tax basis period with the tax year when declaring your taxable profits or losses on your self-assessment return for 2023/24. Unless your business’s accounting period ended on 31 March 2023 or any date up to and including 5 April, the alignment resulted in your profit or loss being the aggregate of two accounting periods. For the majority of businesses this meant a heftier than usual tax bill. However, it’s still possible to reduce it.

False deadline?

HMRC made a big deal over the deadline for reporting the aligned figures by the self-assessment deadline of 31 January 2025. But this ignores your right to go back and alter the figures for any reason, not just to correct errors.

The standard window for amending a 2023/24 self-assessment tax return is 31 January 2026. Until then you could, e.g. change your accounts year end retrospectively or make an election to spread any extra taxable profit caused by the alignment of the basis period over up to five years (see The next step ).

Why bother to amend the figures?

Events after the end of the 2023/24 tax year can affect the amount of taxable profit for that year. This might not have been apparent when you completed your 2023/24 self-assessment return. 

Example.  Jack has been a sole trader for over ten years. His accounts have been drawn up each year to 30 September. His profits for the last few years have consistently been around £6,000 per month. In July 2024 he purchased a new van used solely for his business, which cost him £45,000. He followed HMRC’s suggestion that things would be simpler for 2023/24 and later years if he changed his accounting period to 31 March as this would make calculating the figures for his tax returns easier. By taking this option his taxable profits for 2023/24 were over £35,000 higher than had he stuck with his accounting year end of 30 September. By keeping his accounting year Jack could bring into account the tax deduction (in the form of capital allowances) for his new van.

Not only did Jack have to pay tax on his profits sooner by following HMRC’s suggestion, it also caused him to lose some of his tax-free personal allowance.

The obvious tip for Jack is for him to revert to his old accounting year and amend his 2023/24 self-assessment return as soon as possible. However, in different circumstances the opposite might be true, i.e. tax can be saved by following HMRC’s suggestion and adopting a 31 March year end. Jack’s example is just one situation where tax can be saved by changing accounting periods.