Basis Period Reform FAQ's

Higher tax bills for many sole traders and partners

The timing of taxation of business profits is changing for sole traders and partners

Who is affected?

Anybody trading as a sole trader or partner who produces accounts with a year-end that is not 31 March or 5 April.

What is changing?

From 2024 onwards all business profits will be taxed to 5 April each year.

Why does this matter now?

Many of those affected will already be operating within the accounting year to which this change applies. For instance a business with a 30 April year end will be affected by these rules from 1 May 2022 onwards.

What does this mean?

In the tax year to 5 April 2024 a business above with a 30 April year-end will be taxed on the profits of the 23-month period from 1 May 2022 to 31 March 2024. This is known as the transitional period and for an arable farm this may well include two harvest years.

Will I pay more tax?

For most people affected the answer will be yes! Although the government has announced a 5-year spread of profits. In addition farming is uniquely placed to take advantage of the existing 2 or 5 year averaging rules to mitigate the cashflow impact.

Do I need to change my accounts year-end?

No, you do not need to change your year-end to comply with the new rules. However, your tax returns are likely to be simpler (and cheaper) if you do change.

What should I do?

It is important to talk to your accountant about these changes as early as possible. We believe that the following points are most likely to assist you in this:

  • Identify your transitional period
  • Consider the timing of crop and livestock sales within this period, can they be deferred?
  • Consider whether any capital expenditure can be brought into this period
  • Discuss the availability of farmers averaging or the transitional rules for your business
  • Look into making additional pension contributions

The information contained in this note is of a general nature and is not a substitute for professional advice.  Please speak to us to obtain specific professional advice before you take any action.  No responsibility for loss to any person acting or refraining from action as a result of this document is accepted.

Posted on 12th October 2021 by Joe Attwood.