Basis Reform and Spreading

Basis Period Reform and Spreading of Tax Over Multiple Years
As of April 6, 2023, the Self-Assessment (SA) for income tax has undergone a significant transformation, known as Basis Period Reform.  This change aims to align the taxation of business profits with the standard April-April tax year, rather than any other accounting periods that may have been required by the taxpayer.

While the transition to the new basis period has introduced certain complexities, it also presents opportunities for businesses to manage their tax liabilities more effectively. One such opportunity lies in the spreading of tax arising from transitional profits.

Transitional profits refer to the profits that arise from the transition between the old and new basis periods. These profits can be spread over five tax years, starting from the tax year of transition (2023/24). This spreading arrangement helps businesses manage their cash flow by spreading the tax liability associated with these profits over a longer period.  It aims to mitigate the impact of sudden fluctuations in tax liabilities due to the shift in the basis period.

Tax spreading allows businesses to allocate the additional profits or losses arising from transitional adjustments over multiple tax years, easing the burden of a sudden spike in tax liability. This spreading is designed to provide a smoother transition to the reformed basis period and reduce the financial strain on businesses during this adjustment phase.

Businesses and taxpayers should carefully calculate the transitional adjustments and work with their accountants or tax advisors to determine the most suitable spreading method.

Tax Help, Accounting & Advice from Taxfile

At Taxfile we can help your business to calculate its transitional period profits and advise on how best to spread the liability or loss over the 5-year period. Indeed, we help with all types of accountancy for businesses, limited companies, the self-employed, individuals, and more. Call 020 8761 8000, book a free initial consultation, or message our tax experts today:

Taxfile are accountants and tax advisors located in Tulse Hill and Dulwich in SE21. We’re here to help!