What is Basis Period Reform?
Q: What is Basis Period Reform?
A: Basis Period Reform changes the way profits are reported for Income Tax to align with the tax year (6 April to 5 April). This means businesses that don’t have an accounting period ending on 31 March, 1 April, 2 April, 3 April, 4 April or 5 April will have to make changes to the way they calculate their business profits for their tax returns from the 2023/24 tax year onwards.
Who is affected by this reform?
Q: Who is affected by Basis Period Reform?
A: Sole traders and partnerships not using the tax year for accounting will be affected. New businesses from April 2024 will automatically adopt the tax year basis. The reform is only expected to impact 7% of sole traders. However, 33% of partnerships are likely to be affected.
Why is this change happening?
Q: Why is Basis Period Reform being implemented?
A: To simplify tax reporting, align with other income types, and reduce tax debt issues.
How does the transitional period work?
Q: What is the transitional period for Basis Period Reform?
A: In the 2023/24 tax year, businesses apportion profits over two accounting periods, potentially increasing tax bills. HMRC allows spreading this increase over five years.
What should clients do to prepare?
Q: How should clients prepare for Basis Period Reform?
A: Clients should consider changing their accounting dates to match the tax year and seek help with apportioning profits and understanding the new rules.
I use Xero as my accounting software, will I be ok?
Q: How is Xero preparing?
A: Xero offers tools to manage transitional profit claims and basis period adjustments, making compliance easier.
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