Dext – A Deep Dive into Basis Periods with Paul Aplin OBE

Dext

Back in December 2021, we invited Paul Aplin OBE to share his thoughts on basis periods. Here, Paul recaps the talking points from that webinar and looks at what’s changing and what you need to know.

This blog is based on the rules as we currently understand them (at the time of writing, the Finance Bill is
still in passage through Parliament). It is recommended reading for anyone wishing to join our
follow-up webinar, in which we will answer some of the questions you raised and dive even deeper
into the reforms. You can book your spot, here.

In the transitional year especially, there will be many possible permutations and each case will need to be considered on its particular facts.

What’s changing, why, who will it affect and when?

Currently, unincorporated businesses are taxed on the profit of the accounting period ending in the
tax year (subject to special rules for the opening and closing years of a business).

In the October 2021 Budget, the Chancellor announced that these rules would be reformed. Under
the new regime, unincorporated businesses will be taxed on the “actual” profits of the tax year,
established by time apportioning all sets of accounts which relate in whole or in part to the tax year.

The change aims to eliminate “overlap profits” and align tax payable more closely with the actual
profits generated in a tax year. The government regards this as a simplification measure.

It will affect every unincorporated business (sole traders and partnerships). It will not affect limited
companies. The existing rules will apply for 2022/23. There will be transitional rules for 2023/24. The new rules will apply for 2024/25 and subsequent years.

Three examples

The effects are best illustrated by looking at some examples.

31 March year end

The simplest situation is a business with a 31 March year end (the situation would be the same for a
5 April year end as under the new rules, unless the taxpayer elects otherwise, year ends from 31
March to 5 April are treated as coterminous with the tax year end). – Read more

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