What is a basis period?

Definition of a basis period

A basis period is the time period for which a sole trader or partnership pays tax each year.

Usually your business's basis period will be the same as its accounting year.

In the early years of your business's life, if you are not preparing accounts to match the tax year, you will have to work out your profit for basis periods that don't match your accounting year, and include those on your tax returns.

This often results in you having to pay tax twice on the same profits - but you will have this tax refunded if your business ceases to trade or changes its accounting year end.

If you change your business's accounting year end, or when your business stops trading, then you will also have to check the basis period rules.

Basis period example:

A business starts trading on 1st January 2014 and decides to prepare accounts to 31st December each year.

  • For 2013/14 its basis period will be 1st January 2014 - 5th April 2014, because the first basis period always ends on the fiscal year end.
  • For 2014/15 its basis period will be 1st January 2014 - 31st December 2014, because as the first accounting year is 12 months long, the basis period ends on the same date as the accounting year.
  • For 2015/16 its basis period will be 1st January 2015 - 31st December 2015. The profits made in the period 1st January 2014 - 5th April 2014 will be taxed both in 2013/14 and 2014/15.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.

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