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Basis Period Reform: Are Your Clients Ready?

8th May 2024
Brought to you by
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Coconut’s simple bookkeeping and tax app is specifically designed for sole traders, helping them...
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Unincorporated businesses have traditionally had a lot of leeway when it comes to defining their financial year, or basis period. The challenge for these companies – or, more often, their accountants – is that their accounting year end can then fall out of alignment with the standard tax year.

HMRC has now put their foot down, requiring that self-employed individuals must report profits aligned with the UK tax year, irrespective of their accounting year. With the new rules now in place, it's crucial for accountants to ensure that sole trader clients are prepared for the transition to the tax-year basis.

Reminder: What's Changing?

Currently, sole traders and partnerships calculate taxable profits based on their accounting year-end (current year basis). The reform mandates that from April 6th, 2024, these profits will be taxed based on the tax year (April 6th-April 5th). This shift has significant implications for tax calculations and potential liabilities, and their processes for managing their reporting.

How much pain this change causes depends on how misaligned clients’ accounting year may be to the standard tax year. If their accounting year came to an end between 31 March and 5 April, profits are already reported as per HMRC’s requirements. Otherwise, firms will need to support clients in adapting to the new system.

  1. Cash Flow Forecasting:
    • Analyse the likely tax liability during the transition year (2023/24) and work with clients to understand their liabilities, overheads and billing cycle to plan for potential cash flow pressure.
    • This is an acute issue with transitional profits, where some taxpayers may end up in a higher or even additional rate bracket in some or all of the five years.
    • If profits are predicted to increase, tax planning may be needed to reduce the tax burden by moving profits into earlier years.
  2. Accounting Systems:
    • Evaluate whether clients need to change their accounting year-end to align with the tax year.
    • Now may be the time to take the plunge and move your clients to a digital tax system designed for smaller businesses.
  3. Proactive Communication:
    • Don't delay these conversations. Early planning mitigates potential last-minute complications.
    • Provide clear, concise explanations of the changes and their implications.

Seize The Digitisation Opportunity

While the forced shift of a new basis period creates a short term work spike for firms, it’s also a valuable opportunity to talk to your clients about how they’re approaching tax and record management. Just as many may operate with their own unique accounting period based on ‘how things have been done’, inertia can also creep into bookkeeping and financial management processes.


With change in the air, this is a prime chance to discuss moving to a digital system that you can scale across your whole client-base. Coconut is a user-friendly accounting platform built with  the practical needs of freelancers, sole traders, micro businesses and small private landlords (and their accountants) in mind.

  • Clients can connect their business bank account or credit card to automatically track transactions.
  • For those using their personal account, smart filtering helps separate their business and personal finances to categorise their allowable expenses and better control their cash flow and costs.
  • Clients can scan and save their business receipts via mobile app, as well as sending and tracking invoices.
  • Coconut automatically calculates how much to put away each month for their annual tax bill.

With Coconut, you can create a single, scalable system that works for all your clients, and HMRC, to boost your efficiency across your whole practice. Built for the needs of modern business, Coconut is designed for tax years ending on 5th April, keeping clients fully compliant in the new regime.

By proactively addressing basis period reform, you not only ensure client compliance but also demonstrate your value as a trusted advisor. The transition may present initial challenges, but it also creates opportunities to streamline processes and potentially introduce new services to your client base.

Want to learn more about Coconut? Book a demo here.