HMRC’s New Basis Period Reform Could Bring Higher Tax Bills This January

A change in the way HMRC is calculating when tax is due to be paid on profits arising for the self-employed or members of a Limited Liability Partnership (LLP) mean they could be facing higher bills in January than they are expecting.

The new Basis Period Reform, which has been introduced as a way to standardise when non-incorporated businesses pay tax, will affect anyone who is self-employed or in an LLP with a tax year end outside of March 31 or April 5 each year. They will be expected to pay the tax due on the actual year of their trading rather than their chosen accounting period, which could increase the amount they need to pay in January 2025.

Does this mean paying more tax overall?

Those affected won’t be paying more tax than they otherwise would, but they may need to pay more than they expect in January, as they will need to bring themselves up to date for the 2023/24 tax year. This bill will need to be paid by January 31, 2025, so the main issue for those affected will most likely be cashflow.

However, given 2023/24 is a transitional year, it is possible to spread the transitional profits over a period of five years, which should improve cashflow by reducing the payment due in January. You may also be able to benefit from overlap profit relief if it is relevant. But reducing any liability for January 2025 would mean acting sooner rather than later and speaking to your accountant ASAP.

Critics claim there hasn’t been enough publicity surrounding this change, which could leave many self-employed people and LLP members in the dark about what their liabilities will be in January 2025, with little time to find the extra cash if they have not prepared correctly. You can find more information on the Basis Period Reform on Gov.uk.

Let us help you

If you’re going to be affected by this change, then please get in touch as soon as possible and we will do everything we can to help you prepare.