Upcoming basis of assessment reforms will alter the way trading income is allocated to tax years for the self-employed.
The basis period will be changed from a current year basis to a tax year basis. Under the current system, there can be overlapping basis periods which charge tax on profits twice and generate subsequent overlap relief, which can be used to reduce profits on final tax returns when a business ceases trading.
The new system of using a tax year basis will remove the basis period rules and prevent further overlap relief. The new rules will come into effect in the 2024-2025 tax year and will affect sole traders and partnerships that use an accounting date between 6 April and 30 March. Affected businesses should ensure they are fully prepared for the reforms due to the potential cashflow implications.
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