{"id":10650,"date":"2023-08-25T16:57:48","date_gmt":"2023-08-25T15:57:48","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=10650"},"modified":"2026-02-17T09:47:18","modified_gmt":"2026-02-17T09:47:18","slug":"basis-period-reform-making-tax-digital-businesses","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/basis-period-reform-making-tax-digital-businesses\/","title":{"rendered":"What is Basis Period Reform? How does it impact Making Tax Digital"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-gb\/blog\/category\/money-matters\/\" class=\"entry-header__link\">Money Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is Basis Period Reform? How does it impact Making Tax Digital\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2023-08-25T16:57:48+01:00\">25 August, 2023<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is Basis Period Reform? How does it impact Making Tax Digital\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-gb\/blog\/basis-period-reform-making-tax-digital-businesses\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<div class=\"wp-block-post-author\">\n\t\t\t<div class=\"co-authors\">\n\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-gb\/blog\/author\/asavinwattanajantra\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2026\/03\/Asavin-350x350.jpg\" class=\"entry-author__image\" alt=\"Asavin\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2026\/03\/Asavin-350x350.jpg 350w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2026\/03\/Asavin-768x768.jpg 768w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2026\/03\/Asavin-810x810.jpg 810w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2026\/03\/Asavin.jpg 1000w\" sizes=\"auto, (max-width: 40px) 100vw, 40px\" \/>\t\t\t\t<span class=\"entry-author__name\">Asavin Wattanajantra<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t<\/div>\n\t\t<\/div>\n\n\n\n<p>Getting your taxes right as a sole trader is always a challenge.<\/p>\n\n\n\n<p>But some changes are coming that could have a big impact on certain individuals, especially with the basis period reform.<\/p>\n\n\n\n<p>These changes are connected to the introduction to Making Tax Digital (MTD) for Income Tax, but also independent of it. They are likely to affect <a href=\"https:\/\/www.sage.com\/en-gb\/making-tax-digital\/sole-trader\/\">sole traders<\/a> and others who are outside the scope of MTD for Income Tax.<\/p>\n\n\n\n<p>The changes aim to simplify things and make life easier, and as such may prove revolutionary for those who hate doing their taxes.<\/p>\n\n\n\n<p>They relate to basis periods, which is to say, the periods for which businesses must calculate taxes.<\/p>\n\n\n\n<p>The new rules affect businesses that have accounting dates and periods that don&#8217;t match the tax year (e.g. accounting periods that aren&#8217;t 6 April to 5 April).<\/p>\n\n\n\n<p>In this article, we explain the details, plus what you need to know and start doing right now.<\/p>\n\n\n\n<p>Here&#8217;s what we cover:<\/p>\n\n\n<?xml encoding=\"utf-8\" ?><div class=\"wp-block-yoast-seo-table-of-contents yoast-table-of-contents\"><ul><li><a href=\"#h-key-takeaways-on-basis-period-reform\" data-level=\"2\">Key takeaways on basis period reform<\/a><\/li><li><a href=\"#what-anchor-link\" data-level=\"2\">What&#8217;s the current situation with basis periods?<\/a><\/li><li><a href=\"#meet-anchor-link\" data-level=\"2\">Meet Abi, for a real-world example of the basis period situation<\/a><\/li><li><a href=\"#is-anchor-link\" data-level=\"2\">What is the basis period reform?<\/a><\/li><li><a href=\"#will-anchor-link\" data-level=\"2\">What will the basis period reform mean for Making Tax Digital?<\/a><\/li><li><a href=\"#how-anchor-link\" data-level=\"2\">How basis period reforms will impact businesses<\/a><\/li><li><a href=\"#businesses-anchor-link\" data-level=\"2\">What businesses can do ahead of the new rules<\/a><\/li><li><a href=\"#h-checklist-for-hmrc-basis-period-reform\" data-level=\"2\">Checklist for HMRC basis period reform<\/a><\/li><li><a href=\"#final-anchor-link\" data-level=\"2\">Final thoughts on the basis period reform<\/a><\/li><li><a href=\"#h-basis-period-reform-faqs\" data-level=\"2\">Basis period reform FAQs<\/a><\/li><\/ul><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-key-takeaways-on-basis-period-reform\">Key takeaways on basis period reform<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Basis period reform aligns tax to the UK tax year from 2024\/25, with 2023\/24 as a transitional year.<\/li>\n\n\n\n<li>Businesses with non\u2013tax-year accounting dates may face a higher 2023\/24 bill but can spread transitional profits over 5 years.<\/li>\n\n\n\n<li>Overlap profits can be used and requested from HMRC via an online service.<\/li>\n\n\n\n<li>Consider whether to change your accounting date and plan cash flow early.<\/li>\n\n\n\n<li>MTD for Income Tax starts from April 2026 for some businesses, so aligning dates can simplify reporting.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what-anchor-link\">What&#8217;s the current situation with basis periods?<\/h2>\n\n\n\n<p>When you start up in business, you have to set up your accounting.<\/p>\n\n\n\n<p>A key part of this is choosing an accounting date. This is the point every year when you draw up your books, and do tasks such as working out your taxes.<\/p>\n\n\n\n<p>All businesses need an accounting date, including <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/sole-trader-guide\/\">sole traders<\/a> or other unincorporated businesses.<\/p>\n\n\n\n<p>But if you&#8217;re established as a sole trader then you may be scratching your head.<\/p>\n\n\n\n<p>You might not recall deliberately choosing an accounting date.<\/p>\n\n\n\n<p>This is because the majority of us default to the tax year to decide our accounting date\u20145 April. Your accounting period is therefore 6 April to 5 April the following year.<\/p>\n\n\n\n<p>This is sensible because it simplifies working out taxes.<\/p>\n\n\n\n<p>If you started a business in February, for example, then you work out income and expenditure due up to 5 April.<\/p>\n\n\n\n<p>This will only be a few months for the first time you have to calculate your taxes, but following this, you&#8217;ll account for 12 month accounting periods from 6 April to 5 April the next year.<\/p>\n\n\n\n<p><span class=\"TextRun SCXW223677877 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW223677877 BCX0\">This perio<\/span><\/span><span class=\"TextRun Highlight SCXW223677877 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW223677877 BCX0\">d <\/span><span class=\"NormalTextRun SCXW223677877 BCX0\">wh<\/span><\/span><span class=\"TextRun SCXW223677877 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW223677877 BCX0\">ic<\/span><\/span><span class=\"TextRun Highlight SCXW223677877 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW223677877 BCX0\">h <\/span><span class=\"NormalTextRun SCXW223677877 BCX0\">is<\/span><\/span> <span class=\"TextRun Highlight SCXW223677877 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW223677877 BCX0\">used to <\/span><span class=\"NormalTextRun SCXW223677877 BCX0\">determine<\/span><span class=\"NormalTextRun SCXW223677877 BCX0\"> the taxable profits<\/span><\/span><span class=\"TextRun SCXW223677877 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"> <span class=\"NormalTextRun SCXW223677877 BCX0\">is known as the basis period.<\/span><\/span><span class=\"EOP SCXW223677877 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<p>For those using the tax year as their accounting period, the basis period and the accounting period match.<\/p>\n\n\n\n<p>But this isn&#8217;t always the case.<\/p>\n\n\n\n<p>Let&#8217;s take a look at an example to explain why.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"meet-anchor-link\">Meet Abi, for a real-world example of the basis period situation<\/h2>\n\n\n\n<p>Abi is a sole trader who runs a florist. She founded her business in February.<\/p>\n\n\n\n<p>She decided her accounting period started on 15 February, to be precise. This is when she first opened the doors of her shop and put a bucket of red roses outside.<\/p>\n\n\n\n<p>As such, 14 February each year is her accounting date. Her accounting period runs from 15 February each year.<\/p>\n\n\n\n<p>Abi loves the irony of her accounting year-end falling on Valentine&#8217;s Day.<\/p>\n\n\n\n<p>But working out Abi&#8217;s taxes is a little more complicated than if she&#8217;d just chosen the tax year for her accounting and basis period.<\/p>\n\n\n\n<p>This is especially true for the initial period leading up to 5 April in her first few months of business.<\/p>\n\n\n\n<p>The somewhat complicated basis period rules say this is treated as a unique and shorter-than-usual basis period. In other words, Abi must calculate and pay taxes for 15 February to 5 April.<\/p>\n\n\n\n<p>14 February comes around in the following year. Abi pops open the champagne to celebrate her first full year of trading. Well done, Abi!<\/p>\n\n\n\n<p>But when it comes to working out her taxes, she&#8217;s left scratching her head when she looks at the basis period requirements.<\/p>\n\n\n\n<p>Her full 12-month trading period is again treated as a complete basis period\u2014from 15 February to 14 February. This is even though it includes the period up until 5 April for which she&#8217;s already paid taxes!<\/p>\n\n\n\n<p>In other words, Abi ends up paying tax twice for that initial period of 15 February to 5 April.<\/p>\n\n\n\n<p>You might think that HMRC simply gives Abi the money back as soon as it can. But, no. Sorry, Abi.<\/p>\n\n\n\n<p><span class=\"TextRun Highlight SCXW134485407 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW134485407 BCX0\">Th<\/span><span class=\"NormalTextRun SCXW134485407 BCX0\">e profits o<\/span><span class=\"NormalTextRun SCXW134485407 BCX0\">f th<\/span><span class=\"NormalTextRun SCXW134485407 BCX0\">at<\/span><\/span><span class=\"TextRun SCXW134485407 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"> <span class=\"NormalTextRun SCXW134485407 BCX0\">initial<\/span> <\/span><span class=\"TextRun Highlight SCXW134485407 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW134485407 BCX0\">short <\/span><span class=\"NormalTextRun SCXW134485407 BCX0\">period<\/span> <span class=\"NormalTextRun SCXW134485407 BCX0\">are <\/span><span class=\"NormalTextRun SCXW134485407 BCX0\">referred<\/span><\/span><span class=\"TextRun SCXW134485407 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW134485407 BCX0\"> to as overlap profits. Abi will indeed get to offset it against her tax bill. But only the final one when <\/span><span class=\"NormalTextRun SCXW134485407 BCX0\">she\u2019s<\/span><span class=\"NormalTextRun SCXW134485407 BCX0\"> ceased trading.<\/span><\/span><span class=\"EOP SCXW134485407 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<p>That could be decades down the line when she retires.<\/p>\n\n\n\n<p>Yes, people do often completely forget about their overlap profits. It&#8217;s certainly easy to lose the paperwork.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"is-anchor-link\">What is the basis period reform?<\/h2>\n\n\n\n<p>The basis period rules are complicated. Many people believe they&#8217;re unfair.<\/p>\n\n\n\n<p>The great news is that they&#8217;re being changed as of the 2024\/25 tax year as part of basis period reforms.<\/p>\n\n\n\n<p>As of <span class=\"TextRun Highlight SCXW142446780 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW142446780 BCX0\">6 April 2024<\/span><\/span><span class=\"TextRun SCXW142446780 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW142446780 BCX0\">,<\/span><\/span>&nbsp;all unincorporated businesses must use 6 April to 5 April as their basis period. It doesn&#8217;t matter what their accounting period is.<\/p>\n\n\n\n<p>This causes problems for people like Abi. She can carry on using 15 Feb to 14 Feb as her accounting period.<\/p>\n\n\n\n<p>But, crucially, Abi must now use 6 April to 5 April as the period for which she works out what taxes are due based on her profit and loss.<\/p>\n\n\n\n<p>This will be a legal requirement.<\/p>\n\n\n\n<p>As part of the basis period reforms, 2023\/24 year is considered transitional. This one-off basis period will be longer than 12 months for those businesses that don&#8217;t have accounting periods that match the tax year.<\/p>\n\n\n\n<p>Abi will have to calculate taxes for a basis period of 15 February 2023 to 5 April 2024\u2014a period of 14.5 months.<\/p>\n\n\n\n<p>The good news is that she will finally get back her overlap profits at this point (assuming she or HMRC can find the documentation detailing it).<\/p>\n\n\n\n<p><span class=\"TextRun SCXW233839764 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW233839764 BCX0\">The <\/span><span class=\"NormalTextRun SCXW233839764 BCX0\">bad news<\/span><span class=\"NormalTextRun SCXW233839764 BCX0\"> is that Abi will be landed with a larger than average tax bill for that <\/span><\/span><span class=\"TextRun Highlight SCXW233839764 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW233839764 BCX0\">14.5<\/span><span class=\"NormalTextRun SCXW233839764 BCX0\">&#8211;<\/span><span class=\"NormalTextRun SCXW233839764 BCX0\">month<\/span><\/span><span class=\"TextRun SCXW233839764 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW233839764 BCX0\"> basis period.<\/span><\/span><span class=\"EOP SCXW233839764 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<p>This could seriously impact her cash flow.<\/p>\n\n\n\n<p><span class=\"TextRun SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\">To make life easier, people like Abi will be allowed to deduct the overlap profits from her extra-large tax bill, and then pay <\/span><\/span><span class=\"TextRun Highlight SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\">part of<\/span><\/span><span class=\"TextRun SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"> <span class=\"NormalTextRun SCXW180560564 BCX0\">this tax bill (known as the transitional<\/span> <\/span><span class=\"TextRun Highlight SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\">profits<\/span><\/span><span class=\"TextRun SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\">) over the following <\/span><\/span><span class=\"TextRun Highlight SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\">5<\/span><\/span><span class=\"TextRun SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\"> years, interest-free.<\/span> <\/span><span class=\"TextRun Highlight SCXW180560564 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW180560564 BCX0\">This will mitigate the effect on her cashflow.<\/span><\/span><span class=\"EOP CommentStart CommentHighlightPipeRest CommentHighlightRest SCXW180560564 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<p>At the moment, we assume any business making the switch will declare the transitional profits as part of either its\u202fSelf Assessment tax return\u202feach year, or its Making Tax Digital for Income Tax\u202ffinal declaration. However, the government may introduce further steps to this process which will be revealed before MTD for Self Assessment arrives in April 2026.&nbsp;<\/p>\n\n\n\n<p>Some people have good reasons to use unusual accounting dates. For example, those involved in seasonal businesses, such as tourism or farming, don&#8217;t earn profits consistently across the whole 12 months of a year.<\/p>\n\n\n\n<p>Non-tax-year basis periods often work in their favour, as it can with some businesses that work with non-UK businesses that observe different tax and accounting dates.<\/p>\n\n\n\n<p><span data-contrast=\"auto\">For businesses such as thes<\/span><span data-contrast=\"auto\">e, s<\/span><span data-contrast=\"auto\">witching t<\/span><span data-contrast=\"auto\">o t<\/span><span data-contrast=\"auto\">he accounting period to match the basis period is complicated and will require expert input. <\/span><span data-contrast=\"auto\">However, after the new rules, these businesses must also comply with them to adjust their basis period to match the tax year\u2014there are no exemptions.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-contrast=\"auto\">As this is a complex situation for a minority of businesses, further guidance will be published by the government before the 2026 MTD launch.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"will-anchor-link\">What will the basis period reform mean for Making Tax Digital?<\/h2>\n\n\n\n<p>The introduction of <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/mtd-for-income-tax-complete-guide\/\">Making Tax Digital for Income Tax<\/a> influenced the basis period reforms.<\/p>\n\n\n\n<p>Seen in this light, the basis period reforms are an attempt to simplify the reporting requirements for MTD for Income Tax.<\/p>\n\n\n\n<p>Somebody like Abi might own 3 businesses.<\/p>\n\n\n\n<p>Let&#8217;s say she also had a mail order flower business. This had an accounting date of 1 June. She also receives rental income from the flat above her shop.<\/p>\n\n\n\n<p><a href=\"https:\/\/www.sage.com\/en-gb\/making-tax-digital\/\">Making Tax Digital<\/a> requires periodic reports at least every quarter.<\/p>\n\n\n\n<p>Because of their differing basis periods, Abi could seemingly have found herself having to produce 12 such reports at various times of the year for her 3 businesses.<\/p>\n\n\n\n<p>And that&#8217;s not to mention the requirement for an end of period statement for all three businesses, and a single final declaration bringing together all Abi&#8217;s income tax data.<\/p>\n\n\n\n<p>The basis period reforms don&#8217;t change the requirements to produce these reports, statements and the declaration.<\/p>\n\n\n\n<p>But it will mean that the <a href=\"https:\/\/www.sage.com\/en-gb\/making-tax-digital\/\" target=\"_blank\" rel=\"noreferrer noopener\">deadlines<\/a> for doing so with Abi&#8217;s three businesses are the same, so she can take care of them all at the same time.<\/p>\n\n\n\n<p>It&#8217;s worth noting that using <a href=\"https:\/\/www.sage.com\/en-gb\/accounting-software\/\">accounting software<\/a> will also make Abi&#8217;s life easier. Creating periodic reports will be largely automated, for example.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"how-anchor-link\">How basis period reforms will impact businesses<\/h2>\n\n\n\n<p>If you use the tax year as your basis period then you&#8217;ve nothing to worry about. No changes will be required.<\/p>\n\n\n\n<p><span class=\"TextRun Highlight SCXW109236934 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW109236934 BCX0\">If <\/span><span class=\"NormalTextRun SCXW109236934 BCX0\">you have<\/span><\/span><span class=\"TextRun SCXW109236934 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW109236934 BCX0\"> an accounting period that <\/span><span class=\"NormalTextRun SCXW109236934 BCX0\">doesn\u2019t<\/span><span class=\"NormalTextRun SCXW109236934 BCX0\"> match 6 April to 5 April\u2014there are <\/span><span class=\"NormalTextRun SCXW109236934 BCX0\">4<\/span><span class=\"NormalTextRun SCXW109236934 BCX0\"> potential issues:<\/span><\/span><span class=\"EOP SCXW109236934 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>For the tax year 2024\/25 and later, you&#8217;ll have to calculate the taxes you owe based on the tax year, rather than based on your accounting period.<\/li>\n\n\n\n<li>Your basis period for the year 2023\/24 will be extended to<span class=\"NormalTextRun SCXW223457833 BCX0\">&nbsp;<\/span><span class=\"NormalTextRun SCXW223457833 BCX0\">5<\/span><span class=\"NormalTextRun SCXW223457833 BCX0\"> April 2024<\/span>, which could lead to a higher tax bill. Additionally, if you have any overlap profits from when you first started in your business, you&#8217;ll need to find the documentation so this can be claimed back. <span class=\"NormalTextRun SCXW62365756 BCX0\">You may also need to use provisional figures, which the government will allow for<\/span><span class=\"NormalTextRun SCXW62365756 BCX0\"> during this transition, <\/span><span class=\"NormalTextRun AdvancedProofingIssueV2Themed SCXW62365756 BCX0\">as long as<\/span><span class=\"NormalTextRun SCXW62365756 BCX0\"> you provide an update with <\/span><span class=\"NormalTextRun SCXW62365756 BCX0\">accurate<\/span><span class=\"NormalTextRun SCXW62365756 BCX0\"> figures<\/span><span class=\"NormalTextRun SCXW62365756 BCX0\">.<\/span><\/li>\n\n\n\n<li>You may wish to adjust your accounting date to match the tax year to simplify your accounting. However, this isn&#8217;t mandatory and the decision can be a complicated one for certain kinds of businesses.<\/li>\n\n\n\n<li>You can spread your 2023\/24 transitional profit over 5 years if you wish, without any special permissions. But this will require forward planning to ensure your <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/cash-flow-forecasting-small-businesses\/\">cash flow<\/a> isn&#8217;t affected.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"businesses-anchor-link\">What businesses can do ahead of the new rules<\/h2>\n\n\n\n<p>If you&#8217;re affected by the basis period reforms, the single best piece of advice is to immediately seek advice from an accountant or other tax professional.<\/p>\n\n\n\n<p>A lot of preparation work will be involved ahead of time, along with an increased need to forecast your cash flow to ensure your meet the tax obligations for the transitional year, which started in April 2023.<\/p>\n\n\n\n<p>If you decide to adjust your accounting period to match the tax year then this will require further preparation.<\/p>\n\n\n\n<p>If you decide to go it alone, without expert help, you&#8217;ll need to understand the <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/business-income-manual\/bim81015\">existing basis period rules.<\/a><\/p>\n\n\n\n<p>HMRC guidance such as the <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/business-income-manual\/bim81015\" target=\"_blank\" rel=\"noreferrer noopener\">Business Income Manual<\/a> can help. Then you should read up on details about the\u202fbasis period reform\u202fitself.\u00a0<\/p>\n\n\n\n<p><span class=\"TextRun Highlight SCXW236285760 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW236285760 BCX0\">From 29 August<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\"> 2023<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">, HMRC will make a new <\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">online <\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">form available that will allow <\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">people to request <\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">the overlap<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\"> pr<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">ofit<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\"> information it holds<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">, prior to this a phone call or a paper form was needed to request this <\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">data<\/span><span class=\"NormalTextRun SCXW236285760 BCX0\">.<\/span><\/span><span class=\"TextRun SCXW236285760 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW236285760 BCX0\">&nbsp;<\/span><\/span><span class=\"EOP SCXW236285760 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:240}\">&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-checklist-for-hmrc-basis-period-reform\">Checklist for HMRC basis period reform<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Confirm your current accounting date and whether it aligns to the UK tax year.<\/li>\n\n\n\n<li>Locate or request your overlap profits information from HMRC and keep records safe.<\/li>\n\n\n\n<li>Model transitional profits and plan cash flow, including the 5-year spreading option.<\/li>\n\n\n\n<li>Decide whether to change your accounting date and assess sector-specific implications.<\/li>\n\n\n\n<li>Ensure your software is MTD-ready and supports quarterly reporting for Income Tax.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"final-anchor-link\">Final thoughts on the basis period reform<\/h2>\n\n\n\n<p>For those affected, basis period reform is a classic example of how a little work now could pay dividends in simplified tax calculations and submissions further down the line.<\/p>\n\n\n\n<p>Remember that while basis period reform was influenced by the move to Making Tax Digital, it affects all unincorporated businesses regardless of whether they&#8217;re affected by either <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/vat-return-making-tax-digital\/\">Making Tax Digital for VAT<\/a>, or Making Tax Digital for Income Tax.<\/p>\n\n\n\n<p>Making a start as soon as possible and seeking expert advice is vital if you are affected.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-basis-period-reform-faqs\">Basis period reform FAQs<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1765878223619\"><strong class=\"schema-faq-question\">When does basis period reform start?<\/strong> <p class=\"schema-faq-answer\">Basis period reform takes effect from the 2024\/25 tax year (starting 6 April 2024). The 2023\/24 tax year is a one-off transitional year for those not already aligned to the tax year.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1765878237411\"><strong class=\"schema-faq-question\">Who is affected by basis period reform?<\/strong> <p class=\"schema-faq-answer\">All unincorporated businesses in the UK\u2014such as sole traders and partnerships\u2014are affected. Companies are not affected.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1765878236005\"><strong class=\"schema-faq-question\">How do I calculate transitional profits?<\/strong> <p class=\"schema-faq-answer\">Transitional profits arise where your accounting date doesn\u2019t align with the tax year. After deducting overlap profits, any remaining transitional profit can be spread over 5 tax years. Refer to HMRC guidance and consider professional advice.<\/p> <\/div> <\/div>\n\n\n\n<p><em>Editor&#8217;s note: This article was first published in January 2022 and has been updated for relevance.<\/em><\/p>\n\n\n\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Join more than 500,000 UK readers and get the best business admin strategies and tactics, as well as actionable advice to help your company thrive, in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-b1a63862-3fa0-4a5e-bb67-c76b88bbc6b8\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe now<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1073797282-1-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1073797282-1-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>What&#8217;s the basis period reform? Learn what sole traders and businesses need to know, covering accounting periods, overlap profits and more.<\/p>\n","protected":false},"author":356,"featured_media":11576,"menu_order":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"footnotes":""},"categories":[6],"tags":[135,30,206,27,28],"business_type":[4],"lilypad":[],"context":[],"industry":[],"persona":[73,74,75],"imagine_tag":[142,334,109],"coauthors":[351],"class_list":["post-10650","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","tag-business-finances","tag-mtd-business","tag-need-to-know","tag-tax","tag-vat","business_type-small-business"],"sage_meta":{"region":"en-gb","author_name":"Asavin Wattanajantra","featured_image":"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-606911211.jpg","imagine_tags":{"142":"Making Tax Digital for businesses","334":"Making tax digital for income tax","109":"Small business"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice UK","distributor_original_site_url":"https:\/\/www.sage.com\/en-gb\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/10650","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/users\/356"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/comments?post=10650"}],"version-history":[{"count":2,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/10650\/revisions"}],"predecessor-version":[{"id":28578,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/10650\/revisions\/28578"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media\/11576"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media?parent=10650"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/categories?post=10650"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/tags?post=10650"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/business_type?post=10650"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/lilypad?post=10650"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/context?post=10650"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/industry?post=10650"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/persona?post=10650"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/imagine_tag?post=10650"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/coauthors?post=10650"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}