Basis Period

Basis Period
Introduction
Basis Period
Example: Period of account: 1st April 2022 to 31st March 2023
1st April 2022 31st March 2023
6th April 2022 5th April 2023
The period of account chosen by sole traders and partnerships is not always according to
the tax year.

Basis Period
Example: Period of account: 1st January 2022 to 31st December 2022
1st January 2022 31st December 2022
5th April 2022
6th April 2021

6th April 2022
5th April 2023
Basis Period
▪ Basis period are rules to create a link between the period of account and the tax years.
▪ The aim is to identify how much income/ profit is to be taxed in which tax year
Thank you…
5
Basis Period
Current Year Basis
Current Year Basis
For businesses that are a going concern i.e. are currently operational
Basis Period Rule:
Match the period of account to the tax year that it falls in

Example
Period of account: 1st January 2022 to 31st December 2022
Therefore, the profits of the year ending 31st December, 2022 will be taxed in 22/23
Example
Period of account: 1st July 2022 to 30th June 2023
Therefore, the profits of the year ending 30th June will be taxed in 23/24
Thank you…
10
Opening Year Rules
Introduction
Opening Year Rules
▪ Applicable on a new business
▪ Initial links between the period of account and the tax year needs to be created
▪ After the first period of account is dealt with, the Current Year Basis (CYB) rule applies on
the following period of accounts

1st Tax Year Rule
▪ Basis period will start from 1st day of trade till the following 5th of April.
Example
1st Period of Account: 1st October 2021 to 31st March 2022 – TATP £15,000
2nd Period of Account: 1st April 2022 – 31st March 2023 – TATP £24,000
Example
1st Period of Account: 1st October 2021 to 31st March 2022
2nd Period of Account: 1st April 2022 – 31st March 2023
________________________________________________________________________________
1st Tax Year Rule:
Start of trade: 1st October 2021 to following 5th April: 5th April 2022 – 2021/22
TATP £15,000 will be taxed in 2021/22
Now CYB rules can apply
CYB: 1st April to 31st March 2023 – 2022/23

Example: Loss
1st Period of Account: 1st October 2021 to 31st March 2022 – (£15,000)
2nd Period of Account: 1st April 2022 – 31st March 2023 - £24,000
________________________________________________________________________________
Basis Period:
2021/22: Opening year rule: Tax Adjusted Trading Loss of £15,000
2022/23: Ongoing business rule: Tax Adjusted Trading Profit of £24,000

Example
1st Period of Account: 1st July 2021 to 30th June 2022
2nd Period of Account: 1st July 2022 – 30th June 2023
________________________________________________________________________________
1st Tax Year Rule:
Start of trade: 1st July 2021 to following 5th April: 5th April 2022 – 2021/22
TATP of 9 months will be taxed in 2021/22
But what of the remaining 3 months profits??

2nd Tax Year Rule
Is the period of account falling in the
If the first period of account next tax year?
covers two or more tax years,
then the second link i.e. Basis Yes No
Period rules are as follows:
What is the length of

the POA? B.P.: 6th to 5th April
12 months < 12 months > 12 months

B.P.: Copy, paste POA B.P.: 1st 12 months of trade B.P.: Last 12 months of POA
Thank you…
19
Opening Year Rules
POA = 12 months
2nd Tax Year Rule
next tax year?
Yes No


Example
Tax adjusted Period of account

trading profit
£24000 1/1/2019 - 31/12/2019
£25000 1/1/2020 - 31/12/2020
£30000 1/1/2021 - 31/12/2021
£40000 1/1/2022 - 31/12/2022

Example
1st January 2019 -------------------------------------------------------- 31st December 2019 (12 months)
1st Tax Year Rule
1st January 2019 ---------------------- 5th April 2019 (3 months)
Are the 1st period of account’s profits completely linked to a tax year?
No – move on to the 2nd Tax Year Rule

Example
Tax adjusted Period of account Basis period Tax Taxable

trading profit year profit
£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000

Example
Is the period of account falling in

1st January 2019 ------------------------------- 31st December 2019 the next tax year?
Next tax year
Yes
6th April 2019 -------------------------------------------------------- 5th April 2020
Length of POA: 12 months

the POA?
2nd Tax Year Rule
1st January 2019 ------------------------------- 31st December 2019

12 months
B.P.: Copy, paste POA
Example

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £24000
Overlapping profits £6,000 for 3 months

Example

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £24000
£25000 1/1/2020 - 31/12/2020 1/1/2020 - 31/12/2020 20/21 £25000

Example

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £24000
£25000 1/1/2020 - 31/12/2020 1/1/2020 - 31/12/2020 20/21 £25000
£30000 1/1/2021 - 31/12/2021 1/1/2021 - 31/12/2021 21/22 £30000

Example

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £24000
£25000 1/1/2020 - 31/12/2020 1/1/2020 - 31/12/2020 20/21 £25000
£30000 1/1/2021 - 31/12/2021 1/1/2021 - 31/12/2021 21/22 £30000
£40000 1/1/2022 - 31/12/2022 1/1/2022 - 31/12/2022 22/23 £40000

Thank you…
30
Opening Year Rules
POA < 12 months
2nd Tax Year Rule
next tax year?
Yes No


Example

trading profit
£12000 1/1/2019 - 30/6/2019
£30000 1/7/2019 - 30/6/2020
£30000 1/7/2020 - 30/6/2021
£40000 1/7/2021 - 30/6/2022

Example
1st January 2019 -------------------------------------------------------- 30th June 2019 (6 months)
1st Tax Year Rule

Example

£12000 1/1/2019 - 30/6/2019 1/1/2019 - 5/4/2019 18/19 £6000

Example

1st January 2019 ------------------------------- 30th June 2019 the next tax year?
Next tax year

Yes
6th April 2019 -------------------------------------------------------- 5th April 2020
Length of POA: < 12 months

the POA?
2nd Tax Year Rule
1st January 2019 ------------------------------- 31st December 2019

< 12 months
B.P.: 1st 12 months of trade
We will be borrowing from the next POA
Example

£12000 1/1/2019 - 30/6/2019 1/1/2019 - 5/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £27000 (w)
Working: £27000 = £12000 + (£30000 x 6/12)

Example

£12000 1/1/2019 - 30/6/2019 1/1/2019 - 5/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £27000 (w)
£30000 1/7/2019 - 30/6/2020 1/7/2019 - 30/06/2020 20/21 £30000
Overlap profit = £6,000 for 3 months and ( £30,000 x 6/12) £15000 for 6 months, so total
overlapping profits are £21,000

Example

£12000 1/1/2019 - 30/6/2019 1/1/2019 - 5/4/2019 18/19 £6000
1/1/2019 - 31/12/2019 19/20 £27000 (w)
£30000 1/7/2019 - 30/6/2020 1/7/2019 - 30/06/2020 20/21 £30000
£30000 1/7/2020 - 30/6/2021 1/7/2020 - 30/6/2021 21/22 £30000
£40000 1/7/2021 - 30/6/2022 1/7/2021 - 30/6/2022 22/23 £40000
Overlap profit = £6,000 for 3 months and ( £30,000 x 6/12) £15000 for 6 months, so total
overlapping profits are £21,000
Working: £27000 = £12000 + (£30000 x 6/12)

Thank you…
40
Opening Year Rules
POA > 12 months
2nd Tax Year Rule
next tax year?
Yes No


Example

trading profit
£30000 1/1/2019 - 31/3/2020
£30000 1/4/2020 - 31/3/2021
£30000 1/4/2021 - 31/3/2022
£40000 1/4/2022 - 31/3/2023

Example
1st January 2019 -------------------------------------------------------- 31st March 2020 (15 months)
1st Tax Year Rule

Example

£30000 1/1/2019 - 31/3/2020 1/1/2019 - 5/4/2019 18/19 £6000

Example

the next tax year?
1st January 2019 ------------------------------- 31st March 2020
Next tax year

Yes
6th April 2019 -------------------------------------------------------- 5th April 2020
Length of POA: > 12 months

the POA?
2nd Tax Year Rule
1st April 2019 ------------------------------- 31st March 2020

> 12 months
B.P.: Last 12 months of POA
Example

£30000 1/1/2019 - 31/3/2020 1/1/2019 - 5/4/2019 18/19 £6000
1/4/2019 - 31/3/2020 19/20 £24000
No overlapped profits
Example

£30000 1/1/2019 - 31/3/2020 1/1/2019 - 5/4/2019 18/19 £6000
1/4/2019 - 31/3/2020 19/20 £24000
£30000 1/4/2020 - 31/3/2021 1/4/2020 - 31/3/2021 20/21 £30000
£30000 1/4/2021 - 31/3/2022 1/4/2021 - 31/3/2022 21/22 £30000
£40000 1/4/2022 - 31/3/2023 1/4/2022 - 31/3/2023 22/23 £40000

Thank you…
49
Opening Year Rules
POA covers 3 tax years
2nd Tax Year Rule
next tax year?
Yes No

the POA? 2 B.P.: 6th to 5th April
12 months < 12 months > 12 months 3 B.P.: Last 12

B.P.: Copy, paste POA B.P.: 1st 12 months of trade B.P.: Last 12 months of POA months of POA
Example
£36000 1/1/2018 - 30/6/2019
£30000 1/7/2019 - 31/6/2020
£30000 1/7/2020 - 31/6/2021
£40000 1/7/2021 - 31/6/2022

Example
£36000 1/1/2018 - 30/6/2019 1/1/2018 - 5/4/2018 17/18 £6000
£30000 1/7/2019 - 31/6/2020
£30000 1/7/2020 - 31/6/2021
£40000 1/7/2021 - 31/6/2022

Example
£36000 1/1/2018 - 30/6/2019 1/1/2018 - 5/4/2018 17/18 £6000
6/4/2018 - 5/4/2019 18/19 £24000
£30000 1/7/2019 - 31/6/2020
£30000 1/7/2020 - 31/6/2021
£40000 1/7/2021 - 31/6/2022

Example
£36000 1/1/2018 - 30/6/2019 1/1/2018 - 5/4/2018 17/18 £6000
6/4/2018 - 5/4/2019 18/19 £24000
1/7/2018 - 30/6/2019 19/20 £24000 (w)
£30000 1/7/2019 - 31/6/2020
£30000 1/7/2020 - 31/6/2021
£40000 1/7/2021 - 31/6/2022
Working £36,000 x 12/18 = £24,000
Overlapping profits 36,000 x 9/12= £18,000

Example
£36000 1/1/2018 - 30/6/2019 1/1/2018 - 5/4/2018 17/18 £6000
6/4/2018 - 5/4/2019 18/19 £24000 (w)
1/7/2018 - 30/6/2019 19/20 £24000 (w)
£30000 1/7/2019 - 31/6/2020 1/7/2019 - 30/6/2020 20/21 £30000
£30000 1/7/2020 - 31/6/2021 1/7/2020 - 30 /6/2021 21/22 £30000
£40000 1/7/2021 - 31/6/2022 1/7/2021 - 30/6/2022 22/23 £40000
Working £36,000 x 12/18 = £24,000
Overlapping profits 36,000 x 9/12= £18,000

Thank you…
57
Basis Period
Closing Year Rules
Closing Year Rule
▪ Basis period will be that period of account or periods of accounts whichever are ending
in the tax year of cessation.
▪ In cessation tax year all of the overlap profits will be deducted

Example
£30000 1/7/2019 - 31/6/2020 1/7/2019 - 30/6/2020 20/21 £30000
£30000 1/7/2020 - 31/6/2021 1/7/2020 - 30 /6/2021 21/22 £30000
£40000 1/7/2021 - 31/6/2022 1/7/2021 - 30/6/2022 22/23 £22,000
Overlapping profits = £18,000
In 2022/23 TATP will be 40,000 – 18,000 = 22,000

Example
£30000 1/7/2019 - 31/6/2020 1/7/2019 - 30/6/2020 20/21 £30000
£30000 1/7/2020 - 31/6/2021 1/7/2020 - 30 /6/2021 21/22
£40000 1/7/2021 - 31/3/2022 1/7/2021 - 31/3/2022 21/22

Example
£30000 1/7/2019 - 31/6/2020 1/7/2019 - 30/6/2020 20/21 £30000
£30000 1/7/2020 - 31/6/2021

1/7/2020 - 31/3/2022 21/22 £52,000
£40000 1/7/2021 - 31/3/2022
In 2021/22 TATP will be 30,000 + 40,000 – 18,000 = 52,000

Thank you…
63
Basis Period
Planning
Choosing an Accounting End Date
▪ Better cashflow management
▪ Tax saving in certain cases

Choosing an Accounting End Date
Before 5th April After 5th April
• No overlap profits arise • Overlap profits created
• Reduced time to consider tax planning • Time to work out tax planning measures
aspects • Maximum interval in submitting of return
• Tax return and associated tax payment and paying the tax liability
due soon
Considerations for Opening Years
▪ Possibility of overlapped profits is higher
▪ Reduced profit in the initial period of account to keep a control on the tax amount
▪ Increased allowable expenses:
• Pre-trading expenditure
• Leasing capital items

Thank you…
Basis Period
Change of Accounting Date: Introduction
Introduction
▪ Accounting end date of an ongoing business can be changed for any reason
▪ Application of special basis period rules on the new period of account created, to bring
business back to current year basis

Conditions
▪ Period of account to the new end date ≤ 18 months
▪ No change to account end date in the previous 5 tax years
• If accounting date end changed in previous 5 tax years: approval of HMRC needed
for the current proposed accounting end date change – commercial purpose
▪ Notify HMRC: By 31 January following the tax year in which the change is made
Impact
▪ New period of account < or > 12 months (cap of 18 months)
▪ Application of special basis period rules:
• Overlap profits created
• Overlap profits relieved

Possible Scenarios
Change in accounting
date
Period of Account Period of Account

Period of Account
ending in the tax year ending in the tax year
skips a tax year
< 12 months > 12 months
B.P: the POA itself 1 B.P: 12 m to new POA end

B.P: 12 m to new plus option to date falling in the skipped
POA end date relieve overlap tax year
profits
2 B.P: 12 months to actual
new POA end date
Thank you…
Basis Period
Change of Accounting Date:
New POA < 12 months
Rule
▪ 12 months to the new accounting date

Example
Tax adjusted trading profit Period of account
£12000 1/4/2020 – 31/3/2021
£15000 1/4/2021 – 30/6/2021
£25000 1/7/2021 – 30/6/2022

Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000

Example
1st April 2021 -------------------------------------------------------- 30th June 2021 (3 months)
Change of Accounting Date Rule: New POA < 12 months ending in the tax year
1st July 2020 ---------------------- 30th June 2021 (12 months)
3 months profits of the actual new POA itself plus
9 months profits of the previous POA overlapped

Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000
£15000 1/4/2021 – 30/6/2021 1/7/2020 – 30/6/2021 21/22 £24000 (W1)
(W1) Taxable profits = (£12,000 x 9/12) + £15,000 = £24,000
Overlapping profits = (£12,000 x 9/12) = £9,000

Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000
£15000 1/4/2021 – 30/6/2021 1/7/2020 – 30/6/2021 21/22 £24000
£25000 1/7/2021 – 30/6/2022 1/7/2021 – 30/6/2022 22/23 £25000

Thank you…
Basis Period
New POA > 12 months
Rule
▪ The basis period is the entire new period of account itself
▪ The basis period will exceed twelve months
▪ In this situation, overlap profits brought forward can be relieved
▪ The overlap can reduce the number of months of profit taxed down to twelve, but no
further
Example
£12000 1/1/2020 – 31/12/2020
£30000 1/1/2021 – 31/3/2022
£25000 1/4/2022 – 31/3/2023
Overlap profits of 4 months were £12000

Example

£12000 1/1/2020 – 31/12/2020 1/1/2020 – 31/12/2020 20/21 £12000

Example
1st January 2021 -------------------------------------------------------- 31st March 2022(15 months)
Change of Accounting Date Rule: New POA > 12 months ending in the tax year
1st January 2021 ---------------------- 31st March 2022 (15 months)
3 months in excess of the regular 12 months basis period
So 3 months worth of overlap profits can be relieved in this situation

Example

£12000 1/1/2020 – 31/12/2020 1/1/2020 – 31/12/2020 20/21 £12000
£30000 1/1/2021 – 31/3/2022 1/1/2021 – 31/3/2022 21/22 £21000
Overlap profits relief = £30000 - (£12,000 x 3/4) = £21,000

Example

£12000 1/1/2020 – 31/12/2020 1/1/2020 – 31/12/2020 20/21 £12000
£30000 1/1/2021 – 31/3/2022 1/1/2021 – 31/3/2022 21/22 £21000
£25000 1/4/2022 – 31/3/2023 1/4/2022 – 31/3/2023 22/23 £25000

Thank you…
Basis Period
Skipped Tax Year
Example
£12000 1/4/2020 – 31/3/2021
£30000 1/4/2021 – 30/6/2022
£36000 1/7/2022 – 30/6/2023

Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000

Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000
£30000 1/4/2021 – 30/6/2022 21/22

Rule
▪ There will be 2 basis periods created
▪ The 1st Basis Period will be arrived at in 2 steps:
1. Pick up the new POA end date and deduct 1 year/ 12 months from it
2. Create the Basis Period using 12 months to date worked out in step 1
▪ The 2nd Basis Period will be the 12 months to the new POA end date
▪ Overlapping will occur

Example
1st April 2021 -------------------------------------------------------- 30th June 2022(15 months)
Change of Accounting Date Rule: Tax Year Skipped
1st Basis Period
30th June 2022 – 1 year = 30th June 2021
1st B.P.: 12 months to this date: 1st July 2020 – 30th June 2021
2nd B.P.: 12 months to new POA end date: 1st July 2021 – 30th June 2022
Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000
£30000 1/4/2021 – 30/6/2022 1/7/2020 – 30/6/2021 21/22 £15000 (W1)
1/7/2021 – 30/6/2022 22/23 £24000 (W2)
W1: Taxable profits = (£30000 x 3/15) + (£12,000 x 9/12) = £15,000
W2: (£30000 x 12/15) = £24,000
Overlap profits = (£12,000 x 9/12) = £9,000

Example

£12000 1/4/2020 – 31/3/2021 1/4/2020 – 31/3/2021 20/21 £12000
£30000 1/4/2021 – 30/6/2022 1/7/2020 – 30/6/2021 21/22 £15000
1/7/2021 – 30/6/2022 22/23 £24000
£36000 1/7/2022 – 30/6/2023 1/7/2022 – 30/6/2023 23/24 £36000

Thank you…

Basis Period

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Basis Period

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Basis Period

Example: Period of account: 1st April 2022 to 31st March 2023

1st April 2022 31st March 2023

6th April 2022 5th April 2023

the tax year.

Example: Period of account: 1st January 2022 to 31st December 2022

1st January 2022 31st December 2022

5th April 2022

6th April 2021

Basis Period Rule:

Match the period of account to the tax year that it falls in

Period of account: 1st January 2022 to 31st December 2022

6th April 2022 5th April 2023

Period of account: 1st July 2022 to 30th June 2023

6th April 2023 5th April 2024

▪ Applicable on a new business

the following period of accounts

1st Period of Account: 1st October 2021 to 31st March 2022

2nd Period of Account: 1st April 2022 – 31st March 2023

1st Tax Year Rule:

TATP £15,000 will be taxed in 2021/22

Now CYB rules can apply

CYB: 1st April to 31st March 2023 – 2022/23

2021/22: Opening year rule: Tax Adjusted Trading Loss of £15,000

2022/23: Ongoing business rule: Tax Adjusted Trading Profit of £24,000

1st Period of Account: 1st July 2021 to 30th June 2022

2nd Period of Account: 1st July 2022 – 30th June 2023

1st Tax Year Rule:

TATP of 9 months will be taxed in 2021/22

But what of the remaining 3 months profits??

covers two or more tax years,

then the second link i.e. Basis Yes No

Period rules are as follows:

What is the length of

12 months < 12 months > 12 months

What is the length of

12 months < 12 months > 12 months

Tax adjusted Period of account

£24000 1/1/2019 - 31/12/2019

£25000 1/1/2020 - 31/12/2020

£30000 1/1/2021 - 31/12/2021

£40000 1/1/2022 - 31/12/2022

1st January 2019 -------------------------------------------------------- 31st December 2019 (12 months)

1st Tax Year Rule

1st January 2019 ---------------------- 5th April 2019 (3 months)

No – move on to the 2nd Tax Year Rule

Tax adjusted Period of account Basis period Tax Taxable

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000

Is the period of account falling in

Next tax year

Length of POA: 12 months

1st January 2019 ------------------------------- 31st December 2019

Tax adjusted Period of account Basis period Tax Taxable

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000

1/1/2019 - 31/12/2019 19/20 £24000

Overlapping profits £6,000 for 3 months

Tax adjusted Period of account Basis period Tax Taxable

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000

1/1/2019 - 31/12/2019 19/20 £24000

£25000 1/1/2020 - 31/12/2020 1/1/2020 - 31/12/2020 20/21 £25000

Overlapping profits £6,000 for 3 months

Tax adjusted Period of account Basis period Tax Taxable

£24000 1/1/2019 - 31/12/2019 1/1/2019 - 05/4/2019 18/19 £6000