Basis period reform – the transitional rules

Last year I wrote an article ‘Shaking the foundations’ (Taxation 2 December 2021 page 12) which gave an overview of the upcoming changes to the basis period rules that are due to take effect from April 2023. Since then these changes have passed into law in Finance Act 2022 and some initial guidance has been published in HMRC’s Business Income Manual (see BIM81201 onwards). This therefore seems like a good time for a deeper look at some of the more technical aspects.

This article focuses on how profits and tax will be calculated as we transition to the new rules. Unless otherwise indicated all legislative references are to FA 2022 Sch 1.

Reminder of what’s changing

From April 2023 we will see a fundamental shake up of the rules dictating when the trading profits of unincorporated businesses are subject to income tax.

The...