Satwinder Hayre
Mar 2026
★★★★★
Great company to deal with
Feedback highlights accommodating support, clear availability, and helpful service when schedules were busy.
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.
Frequently Asked Questions: Self-Employed Tax Basis Period Reform in the UK
How does the basis period reform affect self-employed individuals in 2026?
In 2026, self-employed individuals must report profits based strictly on the tax year (6 April to 5 April). This may require apportioning profits from accounting periods that do not align with the tax year.
What is overlap relief and how does it work?
Overlap relief allows businesses to deduct profits that were previously taxed twice under the old system. This relief is typically used in the transitional year to prevent double taxation when switching to the tax year basis.
Do self-employed businesses need to change their accounting period?
Not necessarily, but aligning the accounting period with the tax year can simplify reporting and reduce the need for profit apportionment. Many businesses are choosing to adopt a 5 April or 31 March year-end.
How do you calculate taxable profits under the new basis period rules?
Taxable profits are calculated based on income earned within the tax year, regardless of your accounting period. If your accounts do not align, profits must be apportioned across the relevant dates.
What are the risks of not complying with basis period reform?
Failure to comply can lead to incorrect tax reporting, penalties, and interest charges from HMRC. Businesses must ensure accurate calculations and timely submissions under the new system.
Why is the basis period reform important for self-employed taxpayers?
The reform simplifies the tax system and aligns reporting with Making Tax Digital. It ensures consistency in tax calculations but requires careful planning during the transition to avoid unexpected tax liabilities.
Need Help With the Self-Employed Basis Period Reform?
The basis period reform alters how profits are allocated to tax years and affects overlap relief and transitional calculations, which may change your future tax liabilities. Specialist guidance can help you interpret the reform rules, calculate the impact on your accounts and plan accordingly.
Trusted guidance from London-based accountants, focused on accuracy, clarity, and compliance.
