Owner-Managed Businesses

Basis period reform

Produced by Tolley
  • 19 Jan 2022 14:01

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Basis period reform
  • Overview of basis period reform
  • Reformed basis period system
  • 2023/24 transitional provisions for on-going business
  • Standard part and transitional part of 2023/24
  • Calculation of 2023/24 transitional period profits
  • Spreading of transitional profits
  • Transitional profits and averaging of profits
  • Inclusion of transitional profits in the proforma income tax calculation
  • 2023/24 transitional provisions for new businesses
  • More...

Basis period reform

Overview of basis period reform

The Government intends to reform the income tax basis period system for unincorporated businesses so that it will be on a tax year basis. The proposals are included within the FB 2022 and are scheduled to be brought in for 2024/25 with a transitional year in 2023/24. This is different to the current year basis in force at the moment which uses the general rule that a basis period for a tax year is the 12 months ending with the accounting date in that tax year together with additional rules for the opening and closing years of a business and when there is a change in the accounting period end. The operation of the current rules in the early years of a business can create overlapping basis periods which result in profits being charged twice and the creation of overlap relief which is usually given on the cessation of the business. The proposed reform aims to make the basis of assessment for trading profits simpler and aligned with other sources of income but also links in with the Government’s plans for Making Tax Digital which becomes mandatory for self-employed businesses from April 2024.

For more detail on the current basis periods rules, see the following guidance notes:

  1. Basis of assessment ― normal years

  2. Basis of assessment ― opening years

  3. Basis of assessment ― closing years

The proposals are summarised as follows:

  1. from 2024/25, the profits of the tax year will be the profits arising

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