Basis Period Reform for Farmers

From 2024/25 a business is taxed on the profit arising in the tax year itself, regardless of its accounting date, rather than on the profit of the accounting year ending in the tax year. GOV.UK explains the change in its basis period reform guidance.

For a farm with a 31 March year end nothing much changed. For one with, say, a 30 September or 31 December year end, the profit now has to be apportioned across two accounting years to land in the right tax year, which is more work every year, not just once.

The 2023/24 tax year was the transition. Businesses were aligned to the tax year and any overlap relief carried since they started, or since a previous change of year end, was finally given. Overlap relief is profit that was taxed twice in the early years of a business, and the transition was the point it came back.

The transition often created extra taxable profit in one year. To soften that, the additional profit can be spread over up to five years rather than taxed all at once, and that spreading is still running for farms that used it.

The practical effect is that a farm off the tax-year date has a permanently more involved calculation, and any transition profit still being spread needs tracking. It also interacts with averaging, which is covered in our guide to profit averaging and the herd basis.

If your year end does not match the tax year, it is worth asking whether changing it is now simpler than apportioning every year. We look at that as part of the ordinary accounts work.