---
title: "Basis Period Reform Case Study: 2026/27 Transition Profit"
description: "**2026/27 position:** Basis Period Reform is no longer a future change. Self-employed businesses and partners are now taxed on profits arising in the tax year, even if their accounts use a different year end. Businesses with transition profit from 2023/24…"
url: "https://www.accountingfirms.co.uk/knowledge-bank/basis-period-reform-guide-for-uk-self-employed-businesses/"
updated: "2026-08-12"
category: Self Employed Tax
---

# Basis Period Reform Case Study: 2026/27 Transition Profit

**2026/27 position:** Basis Period Reform is no longer a future change. Self-employed businesses and partners are now taxed on profits arising in the tax year, even if their accounts use a different year end. Businesses with transition profit from 2023/24 normally bring another spread amount into charge in 2026/27, with the final default amount due in 2027/28. An election can accelerate additional transition profit where appropriate.

The Basis Period Reform is the most significant change to the taxation of unincorporated businesses in a generation. From the 2024/25 tax year, all self-employed individuals and partners will be taxed on profits arising in the tax year (6 April to 5 April), regardless of their accounting date. This new 'tax year basis' replaces the old, complex 'current year basis' rules.

While the reform's objective is to create a simpler and fairer system, the 2023/24 [tax year](https://www.accountingfirms.co.uk/blog/good-timing-can-save-a-lot-of-tax/) acts as a crucial transition period that presents unique challenges.

This [case study](https://www.accountingfirms.co.uk/blog/putting-benefits-in-kind-through-the-payroll-from-2026-simples/) illustrates how a typical partnership navigates the transitional rules, uses its historic overlap relief, and prepares for the simpler system ahead.

####

#### **The Client: A Partnership Facing Change**

Let's meet "DesignCo", a successful creative design partnership.

- **Business:** A partnership with two partners.
- **Accounting Date:** They prepare their annual accounts to 30 September each year.
- **The Problem:** Because their accounting date is not 31 March or 5 April, they are directly affected by the Basis Period Reform. They have unused 'overlap profits' from when they started trading, but the partners are unsure what this means or how the transition will affect their tax bill.

The old system created these 'overlap profits' because, in the early years of trading, certain periods of profit were taxed twice. Overlap relief was created to compensate for this, but it could only be used when the business ceased or changed its accounting date. The Basis Period Reform changes all of this.

####

#### **The Solution: Navigating the 2023/24 Transitional Year**

The 2023/24 [tax return](https://www.accountingfirms.co.uk/blog/role-of-accountants-in-mergers-and-acquisitions/) is the key to managing the transition. For DesignCo, this means calculating the profits for a basis period that is longer than 12 months.

### **Step 1: Calculating the Transitional Basis Period**

The basis period for 2023/24 is made of two parts:

1. **The Standard Part:** The usual 12 months following the end of the previous basis period. For DesignCo, this is **1 October 2022 to 30 September 2023**.
2. **The Transition Part:** The period immediately after the standard part, running to the end of the tax year. For DesignCo, this is **1 October 2023 to 5 April 2024**.

This gives DesignCo a total basis period for 2023/24 of **18 months and 5 days**.

### **Step 2: Calculating Profits and Deducting Overlap Relief**

DesignCo must now calculate its profits for this extended period and, crucially, use all its brought-forward overlap relief. This is the final opportunity to do so.

| Calculation Step | Description | Amount |
| --- | --- | --- |
| **A** | **Profits for the Standard Part** (Year ended 30 Sept 2023) | £90,000 |
| **B** | **Profits for the Transition Part** (1 Oct 2023 - 5 April 2024). This is calculated by apportioning the profits of the next accounting period. | £48,000 |
| **C** | **Total Profit for the Basis Period** (A + B) | £138,000 |
| **D** | **Deduct Overlap Relief** (All unused relief must be claimed) | (£18,000) |
| **E** | **Total Taxable Profit for 2023/24** (C - D) | **£120,000** |

### **Step 3: Identifying and Spreading the Transition Profits**

The reform recognises that taxing over 18 months of profit in one year would create a significant [cash flow](https://www.accountingfirms.co.uk/blog/what-is-an-overhead/) burden. Therefore, the additional profit arising from the 'transition part' is automatically spread over five years.

- **Total Taxable Profit:** £120,000
- **Less: Standard Part Profit:** (£90,000)
- **Equals: Transition Profit:** £30,000

This £30,000 transition profit is spread. For the 2023/24 tax year, DesignCo's final taxable profit is:

- Standard Profit (£90,000) + One-fifth of Transition Profit (£6,000) = **£96,000**

The remaining £24,000 of transition profit will be taxed in equal instalments of £6,000 over the next four tax years (2024/25 to 2027/28).

####

## **The Result: A Clear Path Forward**

By following this process, DesignCo has successfully navigated the transition.

- **Compliance:** They have correctly calculated their profits for the 2023/24 transitional year.
- **Tax Efficiency:** They have fully utilised their £18,000 of overlap relief, which might otherwise have been lost or forgotten.
- **Cash Flow Management:** The five-year spread of the transition profits makes their [tax liability](https://www.accountingfirms.co.uk/blog/what-is-an-overhead/) manageable.
- **Future Simplicity:** From the 2024/25 tax year onwards, their [tax calculation](https://www.accountingfirms.co.uk/blog/capital-allowances-whats-new/) is simplified. Their taxable profit will be the profit arising between 6 April and 5 April each year. This provides a clearer link between profits earned and tax paid and removes complex basis period rules for good.

####

## **Key Takeaways for Unincorporated Businesses**

- **Identify if You Are Affected:** If your business does not have a 31 March or 5 April accounting date, you must manage this transition.
- **Find Your Overlap Relief Figure:** This is essential. The 2023/24 tax year is the last chance to use it.
- **Plan for the Transition Profits:** Understand how the five-year spread impacts your tax liability and financial planning.
- **Consider Your Accounting Date:** While not mandatory, changing your accounting date to 31 March or 5 April will simplify the need for apportionment in the future.

 

*For detailed legislative guidance, professionals should refer to Schedule 1 of the Finance Act 2022 and HMRC’s [Business Income Manual](https://www.accountingfirms.co.uk/blog/tax-deductions-for-businesses-is-the-remuneration-excessive/), specifically the sections from BIM81200 onwards.*

##

## References

1. [Business Income Manual - BIM81001 - Computation of liability: introduction to basis periods at 1](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81001#:~:text=these%20rules%20are%20known%20as,%20Next%20page&text=these%20rules%20are%20known%20as,(Sch%201%20FA&text=the%20%E2%80%98current%20year%E2%80%99,%20Next%20page&text=the%20%E2%80%98current%20year%E2%80%99,(Sch%201%20FA)
2. [Basis period reform at 4](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=measure%20was%20put%20forward%20as,%20There%20will%20be&text=measure%20was%20put%20forward%20as,fi%20ts%20to&text=an%20example%20of,%20There%20will%20be&text=an%20example%20of,fi%20ts%20to)
3. [Basis period reform at 3](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=a%20%E2%80%98tax%20year%20basis%E2%80%99%20with,on%20a%20tax%20year%20basis&text=a%20%E2%80%98tax%20year%20basis%E2%80%99%20with,income%20are%20taxed&text=e%20ff%20ect,on%20a%20tax%20year%20basis&text=e%20ff%20ect,income%20are%20taxed)
4. [Basis period reform at 3](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=of%20the%20measure%20This%20measure,of%20trading%20pro%20fi%20ts&text=of%20the%20measure%20This%20measure,of%20early%20years&text=changes%20the%20way,of%20trading%20pro%20fi%20ts&text=changes%20the%20way,of%20early%20years)
5. [Basis period reform at 7](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=expected%20to%20be%20a%20ff,to%20our%20consultation%20have%20suggested&text=expected%20to%20be%20a%20ff,%20Responses&text=ected%20by%20the,to%20our%20consultation%20have%20suggested&text=ected%20by%20the,%20Responses)
6. [Basis period reform at 1](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=HM%20Revenue%20%26%20Customs%20Policy,%20General%20description&text=HM%20Revenue%20%26%20Customs%20Policy,that%20commence%20from&text=paper%20Basis%20period,%20General%20description&text=paper%20Basis%20period,that%20commence%20from)
7. [Business Income Manual - BIM86044 - TMIA – Other Considerations: Overlap Relief at 1](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim86044#:~:text=Business%20Income%20Manual%20BIM86044%20%2D,overlap%20period%20then%20no%20overlap&text=Business%20Income%20Manual%20BIM86044%20%2D,included%20in%20the&text=TMIA%20%E2%80%93%20Other,overlap%20period%20then%20no%20overlap&text=TMIA%20%E2%80%93%20Other,included%20in%20the)
8. [Business Income Manual - BIM81260 - Transitional rules: basis period components for continuing trades at 1](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81260#:~:text=as%20nil%20in%20the%202023%2D24,The%20trader%20may%20elect%20to&text=as%20nil%20in%20the%202023%2D24,2024%2D25%20tax%20year&text=tax%20year,The%20trader%20may%20elect%20to&text=tax%20year,2024%2D25%20tax%20year)
9. [Basis period reform at 5](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=(%20ITTOIA%20),to%20automatically%20spread%20the%20transitional&text=(%20ITTOIA%20),government%20is%20legislating&text=currently%20provides%20for,to%20automatically%20spread%20the%20transitional&text=currently%20provides%20for,government%20is%20legislating)
10. [Basis period reform at 5](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=rules%20for%20businesses%20with%20accounting,document%20published%20alongside%20Autumn%20Budget&text=rules%20for%20businesses%20with%20accounting,the%20policy%20costings&text=dates%20between%2031,document%20published%20alongside%20Autumn%20Budget&text=dates%20between%2031,the%20policy%20costings)
11. [Business Income Manual - BIM81270 - Transitional rules: computing profits for the 2023-24 basis period at 1](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81270#:~:text=Business%20Income%20Manual%20BIM81270%20%2D,overlap%20relief%2C%20the%20amount%20that&text=Business%20Income%20Manual%20BIM81270%20%2D,failed%20to%20deduct&text=Transitional%20rules,overlap%20relief%2C%20the%20amount%20that&text=Transitional%20rules,failed%20to%20deduct)
12. [Basis period reform at 4](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=maintaining%20accurate%20records%20of%20overlap,Background%20to%20the%20measure%20This&text=maintaining%20accurate%20records%20of%20overlap,be%20better%20targeted&text=pro%20fi%20ts,Background%20to%20the%20measure%20This&text=pro%20fi%20ts,be%20better%20targeted)
13. [Basis period reform at 2](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=publication%20is%20available%20at%20https%3A%2F%2Fwww,This%20measure%20changes%20this%20to&text=publication%20is%20available%20at%20https%3A%2F%2Fwww,%E2%80%98current%20year%20basis%E2%80%99&text=reform%2Fbasis%2Dperiod%2Dreform%20Who%20is,This%20measure%20changes%20this%20to&text=reform%2Fbasis%2Dperiod%2Dreform%20Who%20is,%E2%80%98current%20year%20basis%E2%80%99)
14. [Basis period reform at 7](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=that%20this%20measure%20will%20improve,t%20without%20claiming%20corresponding%20relief&text=that%20this%20measure%20will%20improve,same%20pro%20fi&text=the%20simplicity%20of,t%20without%20claiming%20corresponding%20relief&text=the%20simplicity%20of,same%20pro%20fi)
15. [Basis period reform at 7](https://www.gov.uk/government/publications/basis-period-reform/basis-period-reform#:~:text=the%20draft%20legislation%20published%20on,%20The%20population%20a%20ff&text=the%20draft%20legislation%20published%20on,sole%20traders%20and&text=20%20July%202021,%20The%20population%20a%20ff&text=20%20July%202021,sole%20traders%20and)

## 2026/27 planning point

Review the transition-profit figure carried forward from the 2023/24 return, confirm how much has already been brought into charge and model whether accelerating extra profit in 2026/27 is beneficial. The decision can affect marginal tax rates, allowances, payments on account and cash flow. See [HMRC’s transition-profit spreading guidance](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81310) and [GOV.UK’s tax-year basis guidance](https://www.gov.uk/guidance/changes-to-reporting-income-from-self-employment-and-partnerships).