The basics of basis period reform: Part 1

Key points

• Basis period reform rules and changes only apply to sole traders and partners not companies.
• From the tax year 2024-25 all sole traders and partners will pay tax on the trading profits arising in the tax year – this means apportioning profits of different accounting periods.
• To calculate the amount to be included in the tax computation for 2024-25 under the new tax year basis we have to apportion the profits to find the amounts arising in 2024-25.
• For the purposes of exam questions you are always told to work to the nearest month (there is no need to worry about the five days between 31 March and 5 April).
• Any business starting to trade in 2023-24 will be subject to the new tax year basis from the outset.
• Businesses ceasing in 2023-24 will remain on old rules.

One of the perils of being a...