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Overview of basis period reform

The income tax basis period system for unincorporated businesses is abolished from 2024/25 and instead unincorporated businesses will be taxed on profits or losses in a tax year ― the tax year basis, for more details see the Tax year basis from 2024/25 onwards guidance note. The amendments are included within FA 2022 and include a transition year in 2023/24, the rules for which are set out below. Class 4 NIC will also be chargeable on the additional profits taxed in the transition year.

HMRC’s guidance on the basis period reforms can be found at BIM81200 onwards. HMRC have also issued an online guidance to work out transition profits which can be found at ‘Work out your transition profit’.

A summary of the treatment for trades which are on-going, commencing or ceasing in the transitional year is set out below: