If you're a Sole Trader or in a Partnership, the upcoming Basic Period Reform (BPR) may affect you, especially if your accounting year-end date doesn’t fall between 31st March and 5th April. Under BPR, businesses with accounting year-ends outside these dates will need to adjust how they calculate profits for the current financial year (2023–2024) and beyond.

Even if your accounting year-end falls between 31st March and 5th April, BPR could still impact you if you have unused overlap relief.

What Is Overlap Relief?

Overlap relief addresses situations where accounting periods overlap—common when you first start your business or if you change your accounting period dates. This relief helps prevent you from being taxed twice on the same profits during the transition period.

How Will BPR Affect You?

Regardless of your current accounting year-end date, you will now need to submit your business taxes according to HMRC’s financial period of 6th April to 5th April. Starting in April 2024, your profits will be assessed in the same tax year in which they are earned.

For Sole Traders and Partnerships that don’t currently align with the 6th April - 5th April period, a transition phase will be implemented. This could mean reporting profits for an accounting period longer than 12 months, potentially leading to a higher tax bill. However, HMRC will spread the cost of this additional tax over five years to ease the burden.

How Will It Work?

If your accounting period ends between 31st March and 4th April, HMRC will consider your end date as 5th April, under what they call the late accounting date rules. In this case, you won’t need to make any changes under BPR and can continue with your existing accounting period. For example, if your accounting end date is 1st April for the 2024/2025 tax year, you will report profits earned from 2nd April 2024 to 1st April 2025. Any business conducted during the additional days between 3rd and 5th April will be included in your tax submission for the following year.

If your accounting year-end doesn’t fall between 31st March and 5th April, you must comply with BPR’s transition rules. This means:

- Preparing two sets of accounts for the 2023/2024 accounting year.

- Paying tax and national insurance based on that tax year’s profit.

Depending on when your accounting period ends, you might have less time to prepare and submit your tax return. In some cases, you may need to provide estimates if you can’t finalize your year-end figures in time.

Alternatively, you can opt to change your accounting period to align with the new requirements.

Changing Your Accounting Period

If you decide to change your accounting period, you must notify HMRC. While you can choose any accounting period, it must fall between 31st March and 5th April to avoid the implications of BPR. The chosen period cannot exceed 18 months. If you’ve already changed your accounting period within the last five tax years, you won’t be allowed to change it again.

If all of this feels overwhelming, don’t hesitate to reach out. We’re here to help you navigate these changes and manage your finances with as little stress as possible.