What is basis period reform?

Basis period reform (BPR) introduces a fundamental change to the way in which partnerships (including limited liability partnerships (LLPs)) and unincorporated businesses (including sole traders) are taxed on their taxable profits where the accounting year end is not co-terminus (co-terminus includes year ends ending 31 March through to 1-5 April) with the tax year.

BPR was introduced to simplify the taxation of self-employed individuals and as an enabler for making tax digital. HMRC felt that there were self-employed individuals that did not understand the basis period on which they were taxed and the concept of overlap profits. The new rules are in place in this 2024-25 tax year following on from the transitional year 2023-24. This article discusses the tax implications for a partner and a partnership/LLP. BPR also applies to sole traders and self-employed individuals that have their own unincorporated businesses.

The old ways...