By David Richmond Partner, Armstrong Watson Accountants, Business and Financial Advisers

FROM April 1, 2024 – with a ‘transitional year’ 2023/24 – all sole traders and partnerships will be required to ensure their accounting year (basis period) ends on March 31 or April 5.

The ‘basis period’ refers to the 12 months preceding a business year end and relates to how the profits/losses an individual or partnership (unincorporated business) reports on their tax return are calculated. This might seem a long way off, but will require some extensive planning for those businesses that currently run their basis period by the calendar year, for example, as tax will be due for the accounting period specified rather than the chosen accounting period end as a business owner may do now.

Specific rules already determine the basis period in certain circumstances, including during early years of trading and can create overlapping basis periods which may result in profits being taxed twice and these profits are known as “overlap profits”.

For example, a partnership currently prepares their accounts up to September 30 (their accounting reference date), which is their ‘current basis period’. From October 1, 2022, the partnership enters the ‘transitional year’ with the ‘standard profits’ to September 30, 2023, and the ‘transitional profits’ to March 31 or April 5, 2024. Payments on account for 2023/24 remain payable by January 31, 2024, and July 31, 2024, and following the deduction of overlap profits, any remaining tax due is payable by January 31, 2025. This will also include one fifth of the tax due on the transitional profits. Thereafter, profits will be taxed on the tax year to March 31/ April 5 with tax on the transitional profit being added to the annual tax liability to 2027/28 (unless an election to pay all transitional profit tax is made prior to the final year). If you fall within the criteria which requires a change in the basis period for your business, you will not pay additional tax but there may be an acceleration in the payments of tax you owe. The changes may result in significant tax balances through the transitional period, so it pays to plan ahead and be prepared for the change.

We have a long and established history of assisting clients navigate their way through tax legislation. If you require assistance with the ‘change in basis period’ and want to understand more about the impact it may have on your taxable profits, please contact David Richmond on 01756 620000 or email