Basis Period Reform: A Case Study

Tax in ActionSelf-Employed Tax
Let's look at Aisha, a self-employed consultant whose accounting year ends on 31st December. This example shows how her profits were taxed in the 2023/24 'transitional year'.

Aisha has been trading for years, with her accounting year always ending on 31st December. She has 'overlap profits' of £5,000 from when she started her business.

The Transitional Year (2023/24)

In this special year, Aisha is taxed on two periods:

  1. The 'standard part': The 12 months of her normal accounting period, i.e., the year ended 31st December 2023. Profit: £40,000.
  2. The 'transition part': The period from the end of her standard part to the end of the tax year, i.e., 1st Jan 2024 to 5th April 2024. Profit: £10,000.

The Calculation for 2023/24

  • Total Profit: £40,000 + £10,000 = £50,000
  • Deduct Overlap Relief: £50,000 - £5,000 = £45,000

Aisha's taxable profit for the 2023/24 tax year is £45,000. From 2024/25 onwards, she will be taxed on profits arising within the tax year (6th April to 5th April).

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