Self-Employed Tax Basis Period Reform: What the Changes Mean for You

This guidance is for self-employed individuals and sole traders who prepare accounts to a date other than 31 March or 5 April and need to understand how the tax basis period reform affects their taxable profits.

This page explains how the basis period reform changes the way self-employed profits are taxed, what happens during the 2023–24 transitional year, and what applies from 2024–25 onwards.

The reform can bring forward taxable profits, create transitional profits, and affect cashflow if not understood properly. Getting this wrong can lead to incorrect tax returns, missed overlap relief, or unexpected tax liabilities.

How the basis period reform changes self-employed taxation

Under the basis period reform, self-employed individuals are moving to a tax-year basis. This means profits will be taxed based on the tax year itself, rather than the accounting year ending in that tax year.

This change primarily affects sole traders who do not prepare accounts to 31 March or 5 April, as their profits may previously have been taxed with a delay.

The 2023–24 transitional year explained

The 2023–24 tax year is treated as a transitional year. During this year, profits taxed may include:

• Profits from the normal accounting period ending in 2023–24, and
• Additional profits to bring the taxpayer onto a tax-year basis

This can result in higher taxable profits for 2023–24, even though business income has not increased.

Transitional profits and overlap relief

Where additional profits arise in the transitional year, these are known as transitional profits. These profits can generally be spread over up to five tax years, helping to manage the tax impact.

Any overlap relief previously created should be deducted as part of this calculation. Identifying and applying overlap relief correctly is critical — HMRC will not always hold accurate overlap figures.

Further HMRC guidance on basis period reform is available at
GOV.UK – Basis period reform.

Risks and consequences if this is handled incorrectly

If the basis period reform is misunderstood or applied incorrectly, a taxpayer could face:

• Incorrect Self-Assessment returns for 2023–24 or later years
• Overpayment of tax due to missed overlap relief
• Unexpected cashflow pressure from accelerated taxable profits
• HMRC amendments, interest, or penalties if errors are identified later

These risks are higher where accounting dates differ significantly from the tax year.

In practice: what we commonly see

In practice, many self-employed individuals are unaware that profits may now be taxed earlier than before. We often see overlap relief figures missing or underestimated, particularly where businesses have changed accountants in the past. Transitional profit spreading is frequently misunderstood, leading to unnecessary concern or incorrect assumptions about tax bills.

Local support for self-employed taxpayers

For self-employed individuals looking for clarity on basis period reform, experienced accountants in Hammersmith support clients across nearby areas such as Brackenbury Village and Brook Green. At CIGMA Accounting, we help ensure profits, overlap relief, and transitional rules are applied correctly and consistently, so your tax position reflects the new rules accurately.

Check whether basis period reform affects your tax position

If you are self-employed and your accounting date is not 31 March or 5 April, the basis period reform may significantly affect how and when your profits are taxed. A short review can help identify transitional profits, confirm overlap relief, and prevent incorrect Self-Assessment filings.