The rule that links your accounts to a tax year. The 2024 reform made it far simpler — and ended the era of overlap profits.
For decades, the basis period was the single most confusing thing about being newly self-employed in the UK. People were taxed twice on the same early profits, told to track something called "overlap relief" for years, and left to puzzle over why their tax bill bore little relation to their accounting year. The 2024 reform took an axe to all of it. Understanding what changed — and what the basis period now means — is genuinely simpler than it has ever been.
Profits build up over your accounting period — the window your accounts cover. But tax is charged by reference to a tax year, the fixed 6 April to 5 April. The basis period is the bridge between the two: it answers the question, "which profits count for this tax year?"
When your accounting date and the tax year line up, the bridge is trivial: the profit in your accounts is the profit for the year. When they do not, the basis period rules tell you how to split things.
Before the reform, you were generally taxed on the profit of the accounting period ending in the tax year. That sounds tidy until your accounting date is not 5 April. A business with a 30 April year end, for example, was taxed in 2022/23 on profits earned mostly in the previous calendar year — and in the opening years, some profit was taxed twice. That double-counted slice was called overlap profit, and you could only recover it ("overlap relief") years later when you ceased trading or changed your accounting date.
The result: confusing first-year bills, a number you had to carry on your return for a decade or more, and a system that simply did not fit quarterly digital reporting.
The reform ran in two steps. 2023/24 was a transitional year: businesses with non-April year ends were taxed on their normal period plus the extra months needed to reach 5 April, with leftover overlap relief used up and any remaining "transition profit" spreadable over up to five years. From 2024/25, everyone is on the tax-year basis — taxed purely on profit arising 6 April to 5 April, with no new overlap profits ever created again.
Liam runs a landscaping business with accounts to 30 September. Under the tax-year basis, his 2025/26 basis period is the tax year, so he apportions two accounting periods:
| Accounting period | Profit | Days falling in 2025/26 | Apportioned profit |
|---|---|---|---|
| Year to 30 Sep 2025 | £36,000 | 178 of 365 | £17,556 |
| Year to 30 Sep 2026 | £40,000 | 187 of 365 | £20,493 |
| Basis period profit 2025/26 | £38,049 |
That £38,049 is what Liam is taxed on for 2025/26. Because the later accounts may not be finalised by his filing date, he might use a provisional figure and amend it. Contrast this with a peer who moved to a 5 April year end: their basis period profit is simply their one accounting figure, no apportionment at all. For more worked scenarios, see the TapTax blog.
The reform was not tidiness for its own sake. Making Tax Digital for Income Tax, live from April 2026 for those over £50,000, requires quarterly updates aligned to the tax year. A current-year basis with floating accounting dates and overlap profits would have been almost impossible to report quarterly. By forcing the basis period to equal the tax year, the reform made digital quarterly reporting coherent. In practice, most sole traders now simply move their accounting date to 5 April and the basis period stops being something they ever think about.
The basis period used to be the hardest part of self-employment to explain. After 2024, the honest answer is: it's the tax year. That is the whole point of the reform.
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