Basis Period Reforms For Partnerships And Sole Traders: Where Are We Now?

Lubbock Fine


Lubbock Fine
With the passing of the 2023/24 tax year, it's important that firms consider the impact of HMRC's basis period reforms as soon as possible, if they haven't done so already.
UK Tax
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With the passing of the 2023/24 tax year, it's important that firms consider the impact of HMRC's basis period reforms as soon as possible, if they haven't done so already.


Put simply, if your unincorporated firm doesn't currently have a year end of 31 March or 5 April, HMRC's Basis period reforms are likely to significantly impact you. The detailed rules are discussed more thoroughly in our earlier blog (HMRC's Basis Period Reforms – What should your partnership do next? - Lubbock Fine)

To change or not to change?

There is no obligation for firms to formally change their year end to 31 March to align with the tax year although it's estimated that around two thirds of firms will opt to do so. There will be a variety of commercial factors which may warrant firms not wishing to change their year end but this will undoubtably add to the administrative burden going forward.

Checklist of considerations

The below list is not exhaustive but gives an indication of the sort of things you and your finance team ought to be considering:

  • Timing – what is your current year end and are you able to complete your accounts and tax computations by 31 January following, being the tax return deadline and payment date? For early year ends such as April or May, it may well be achievable to do so, but for later year ends such as November or December, this will be almost impossible and so estimates will need to be used, to be updated when final figures are available.

  • Financial impact – if profits accrue evenly over your financial year and do not fluctuate significantly from year to year, there is unlikely to be a material difference in tax liabilities regardless of whether you change your year end or not since the basis period reform will require an apportionment of profits up to 31 March 2024.

  • Planning for tax liabilities - are partners aware of their expected transitional profits, and their options for spreading the liability over up to 5 years.

  • Pensions – are partners planning any pension contributions correctly? Are they aware of the impact of transitional profits on the level of earnings for determining the maximum pension contributions partners can make.

  • Simplicity – going forward, a year end other than 31 March will require apportionments of two or more accounting periods in order to determine the profits to be assessed in each respective tax year. It's fair to say that a 31 March year end is easier to understand for partners and plan accordingly, as well as being simpler for new joiners and leavers.

  • Partnership and LLP agreements – year end specific clauses such as profit-sharing arrangements, holiday years or retirement dates linked to the year end should be reviewed.

  • Internal finance – management accounts and reporting, including comparatives, budgeting processes and partner drawings policies should be reviewed. VAT return periods should also perhaps be adjusted to align with the new year end.

  • Third party obligations – you should check obligations to inform third parties of a year end change, such as Companies House, bankers, insurance providers or landlords.

  • Staff remuneration – pay review and benefit packages may need to be adjusted to tie in with the new year end, as well as the holiday year.

How can we help?

We have undertaken a number of reviews for clients and helped outline the financial and non-financial impact of the basis period reforms. We have determined the immediate tax impact, which will arise in January 2025, as well as the related practical implications in terms of the timing of tax returns. Some firms have taken the leap to change their year end in the hope that things will become easier after the initial upheaval of the change. Other firms have decided to stick with their current year end but understand the impact doing so will have on their business.

We know that it's not all about tax. That's why we advise on the full range of areas affecting your business, from profit improvements to partner compensation to even strategic advice for business leaders or partners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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