Insights

Getting overlap relief for basis period reform

By RJP LLP on 15 September 2023

Basis period reform is an accounting change that was introduced in the 2021 Autumn Budget and is in the process of becoming relevant for some taxpayers. It was intended to simplify tax accounting for unincorporated businesses, i.e. taxpayers who are self-employed or are partners in a partnership or LLP.

One of its effects is to bring forward the date on which tax is payable by setting the basis period for tax calculations from April 2024 to April 2025, regardless of the accounting period used by the business. As the new rules become applicable, it could mean that some businesses face paying extra tax in the short term because of the way the new date periods align with their existing accounting conventions.

Transitioning to the new basis period

The 2023/24 tax year will be a transitional year, during which businesses will be taxed on:

The profits arising in their accounting year; plus
The profits arising from the end of their accounting year to 31 March (or 6 April) 2024; less
All overlap relief previously accrued by the business.

To ease businesses through this transition period, at a time when many are already feeling the squeeze due to the economic climate, HMRC is enabling them to use the ‘overlap relief’ they have brought forward from the period when the business commenced.

This is only relevant for businesses whose accounting year end doesn’t align with the tax year end (which HMRC accepts for this purpose can be treated as 31 March) and for many of those businesses the overlap relief brought forward on their previous self assessment returns.

There will however be business owners who have lost sight of their overlap relief, and for those, HMRC have introduced a new facility. This is available now, week commencing 11 September 2023, via an online form,

This online form will make it much easier for affected taxpayers – sole traders, partners and accountants acting on their behalf - to submit requests for their overlap relief amount. Once they know the amount, they will be able to claim it against taxable profits in the 2023/24 tax year.

What are the benefits of overlap relief?

Overlap relief is being made available in advance of HMRC’s reform to the basis period. It is designed to help taxpayers who’s accounting year end is not aligned to the tax year and who have to switch to the new tax year basis period from 2024/25.

Information needed to access your overlap relief figure

To access the online overlap relief service, HMRC will need the following information:

customer name;
unique taxpayer reference (UTR);
name or description of business;
business address;
whether the business is a sole trader or partnership;
details of the partnership if applicable;
partnership’s UTR if applicable;
date of commencement of the self-employed business or partnership;
most recent period start date and the end date used to report its profit and loss;
if applicable, the year(s) in which the accounting period changed.

Is your business affected by basis period reform?

Many businesses already have a 31 March accounting year end, and they will not be affected. However, any businesses with a different year end will be taxed on additional profits for 2023/24 to bring them into line with those having a 31 March year end. This will of course have the financial implication of a higher tax bill for 2023/24 where a business is making profits.

Key dates for basis period reform planning

2022/23: Final year of existing basis period rules which specify that profits of the accounting year ending within the tax year form the basis of the taxable amount;

2023/24: Transitional year where businesses must synchronise their financial year with the tax year;

2024/25: Mandatory basis reform begins - businesses must adopt the same financial year as the tax year and declare taxable profits for this year only.