Basis Period Reform in 2026: How Sole Traders Now Report Profits for Self Assessment

Since April 2024, HMRC has introduced major changes to how sole traders and partnerships report profits for Self Assessment. These changes, known as Basis Period Reform, mean businesses must now report profits using the tax year basis rather than their accounting year.

If you run a business and complete a Self Assessment tax return in 2026, it’s important to understand how the new rules work and how they affect your profit reporting.

The Transition Year Has Passed – What Applies Now?

The 2023–2024 tax year was the transition year used to move businesses from the old “current year basis” to the new tax year basis.

From the 2024–2025 tax year onwards, businesses must report profits covering the tax year period:

6 April to 5 April

This rule still applies in the 2025/26 tax year and beyond.

How Self Assessment Profit Reporting Works in 2026

When completing your 2025/26 Self Assessment tax return, you must report profits earned between:

6 April 2025 and 5 April 2026

If your accounting year end already falls between 31 March and 5 April, the process is straightforward — you simply use your annual accounts as usual.

However, if your accounting year end falls on another date, you may need to combine profits from two accounting periods.

Example: Accounting Year End of 31 December

If your accounting year ends on 31 December, your 2025/26 tax return will include profits from:

• 1 January 2025 – 31 December 2025, and
• 1 January 2026 – 5 April 2026

This ensures the profits reported align with the tax year rather than the accounting year.

Estimating Profits May Be Necessary

Because your accounts may not yet be finalised for part of the tax year, you may need to estimate profits for the final period.

Once the final accounts are prepared, any difference between the estimate and the final figure is corrected in the following year’s tax return.

This is now a normal part of the tax year basis system.

How Profits Are Apportioned

When splitting profits across different periods, the standard approach is to apportion profits based on the number of days in each period.

However, HMRC allows alternative methods where appropriate, provided they are:

• Reasonable
• Consistently applied

Common alternatives include apportioning profits by:

• Months
• Weeks

What Happened to Transition Profits?

Many businesses generated transition profits in the 2023–2024 tax year when profits covering more than 12 months were reported.

After applying Overlap Relief, any remaining transition profit is spread over five tax years, from:

2023–2024 to 2027–2028

This means businesses filing Self Assessment in 2026 may still have transition profits being taxed gradually.

Should You Change Your Accounting Year End?

Many accountants now recommend aligning your accounting year end with 31 March or 5 April.

This helps:

• Avoid profit estimates

• Simplify Self Assessment reporting

• Reduce administrative complexity

Businesses that keep a different year end can continue to do so, but they will likely need to estimate profits each year.

Key Takeaways for Businesses in 2026

• All sole traders and partnerships now use the tax year basis.
• Profits must reflect 6 April to 5 April each year.
• Businesses with different accounting year ends may need to combine two sets of accounts.
• Transition profits may still be spreading until 2027/28.
• Aligning accounts to 31 March or 5 April can simplify reporting.

Frequently Asked Questions

Do I still need to think about the transition year in 2026?

Only if you have transition profits still being spread. These continue until the 2027/28 tax year unless you choose to accelerate them earlier.

Can I keep my existing accounting year end?

Yes. HMRC does not require you to change it, but you may need to estimate profits each year when completing your Self Assessment return.

Why did HMRC introduce basis period reform?

The reform was designed to simplify the tax system and prepare for Making Tax Digital for Income Tax, which will require quarterly reporting in future.