Basis Period Reform: The Ongoing Problems No One Talks About
Basis period reform is no longer “new.”
The transition year has passed, the rules are in force, and on paper the system is now simpler: profits are taxed based on the tax year rather than the accounting year.
But in practice, the opposite is often true.
While the headline change was straightforward, the ongoing implications are more complex than many expected. For sole traders and partnerships who haven’t aligned their accounting date to 31 March or 5 April, the administrative and technical challenges haven’t gone away—they’ve become part of the annual process.
This is where the real issues now sit.
What Actually Changed
From 2024/25 onwards, all unincorporated businesses are taxed on profits arising in the tax year (6 April to 5 April).
Previously:
- Profits were taxed based on the accounting period ending in the tax year
Now:
- Profits must be apportioned to the tax year, regardless of the accounting date
At a high level, this removes overlap profits and simplifies the system.
In practice, it introduces a different kind of complexity.
The Ongoing Issue: Misaligned Year Ends
The key dividing line is simple:
If your accounting year-end is not 31 March or 5 April, the complexity does not go away.
Instead, it becomes an annual requirement.
Apportionment: Now a Permanent Feature
For businesses with, for example, a 31 December year-end:
Each tax return now requires:
- Profits from two accounting periods
- Split and combined into a single tax year
For 2025/26, that means:
- 3 months of one set of accounts
- 9 months of another
This creates a structural issue:
- One part is based on finalised figures
- The other is often based on estimates
Provisional Figures and Amendments
Because accounts are rarely finalised immediately, many businesses now rely on provisional figures when filing their tax returns.
This leads to a recurring cycle:
- Submit return using estimates
- Finalise accounts later
- Amend the return
While permitted, this introduces:
- Additional admin
- Greater risk of error
- Ongoing adjustments to tax positions
Overlap Relief: Still Causing Problems
Overlap relief was meant to be resolved in the transition year.
In reality, it has exposed a different issue:
Many taxpayers didn’t know what their overlap relief figure actually was.
In some cases:
- Records were incomplete
- Historical data was missing
- Estimates were used
Now, in 2026, the problem is not using overlap relief—it’s:
- Whether it was used correctly
- Whether the figure was accurate
Once used, it cannot be revisited easily.
Cash Flow Distortion: The After-Effect
The transition year accelerated profits into a single tax year, often increasing taxable income significantly.
While spreading provisions were available, the impact is still being felt through:
- Higher ongoing tax liabilities
- Distorted payments on account
- Reduced visibility over “normal” profit levels
For many, 2026 is the first year where:
The system has stabilised—but the baseline has shifted.
The Strategic Question: Change Year-End or Not?
One of the key decisions now facing businesses is whether to:
Keep their existing year-end, or align to 31 March / 5 April.
Keeping a Non-Aligned Year-End
This may make sense commercially, but it means:
- Ongoing apportionment
- Continued use of estimates
- More complex compliance
Aligning the Year-End
This simplifies tax reporting:
- Removes the need for apportionment
- Reduces reliance on provisional figures
But may create:
- A one-off adjustment period
- Commercial or operational disruption
Where Things Go Wrong
Now that the rules are in place, the issues are less about awareness—and more about execution.
Assuming the Complexity Was Temporary
Many expected the transition year to be the difficult part.
In reality, the complexity continues where year-ends are not aligned.
Over-Reliance on Estimates
Using provisional figures without proper follow-up can lead to:
- Incorrect filings
- Missed amendments
- Inconsistent reporting
Lack of Record of Overlap Relief Used
Without a clear audit trail, it becomes difficult to:
- Support the position taken
- Reconcile historical figures
No Review of Year-End Position
Continuing with an existing year-end without reassessing whether it still makes sense under the new rules.
Practical Approach: Managing the New System
Basis period reform does not require complex planning—but it does require a change in approach.
Review Your Accounting Date
Consider whether your current year-end:
- Still works under the new system
- Or creates unnecessary complexity
Minimise Use of Provisional Figures
Where possible:
- Align reporting timelines
- Reduce reliance on estimates
Maintain Clear Records
Particularly around:
- Overlap relief used
- Apportionment calculations
- Amendments made
Expect Ongoing Adjustments
For non-aligned businesses, this is not a one-off issue—it’s part of the annual cycle.
How Merranti Can Help
Basis period reform is no longer about preparing for change—it’s about managing its impact.
At Merranti Accounting, we help clients:
Assess Whether Their Structure Still Works
Including whether a change in accounting date would simplify reporting.
Manage Apportionment and Reporting
Ensuring calculations are accurate and consistent.
Reduce Reliance on Estimates
Improving the quality and timing of financial information.
Maintain Clear Supporting Records
So positions are defensible and easy to follow.
Final Thought
Basis period reform was intended to simplify the system.
In some cases, it has.
But for many businesses, it has simply moved the complexity into a different part of the process.
The question now is not how the rules work.
