Advanced Taxation (UK) · Income tax: income from self-employment

Basis Period Rules for the Self-Employed: Opening and Closing Years

Updated 11 October 2026 · Fact-checked

Under the tax year basis, a sole trader is taxed on the profits arising in each tax year (6 April to 5 April). You time-apportion profits from the accounting periods that fall in that year. In the first year you take profits from the start date to 5 April. In the final year you take 6 April to the cessation date.

Understand Basis Periods and Opening and Closing Year Rules

A sole trader or partner is taxed on trading profits by tax year. The basis period for a tax year is the tax year itself. The business may draw up accounts to any date, such as 30 June. So you must convert accounting-period profits into tax-year profits.

You do this by time apportionment. For each tax year, take the part of each accounting period that falls in 6 April to 5 April. Apportion that period's adjusted profit by months. The exam tells you to apportion to the nearest month. Add the slices together to get the taxable profit for the year.

In the opening year, the basis period runs from the date trading starts to the following 5 April. The next tax year is a full tax year, built by apportioning. Under the tax year basis each slice of profit is taxed once, so a new business does not build up overlap profits. Older questions and websites talk about overlap profits and 'second year' rules. Those belong to the old current year basis, which ended after the 2023/24 transition year.

In the closing year, the basis period runs from 6 April to the date trading stops. Any profits not yet taxed fall into that year. A change of accounting date needs no special rules. You simply apportion whichever accounting periods overlap each tax year. A long or short period of account is dealt with by the same apportionment. Any overlap relief from before 2024/25 was dealt with in the 2023/24 transition year. Use only what the question gives you for transition profits.

If the accounts for a period are not yet ready when the return is due, the profit is provisional. It is later replaced by the actual figure.

Key rules to remember

Basis period: Basis period = the tax year (6 April to 5 April); This applies to continuing years. Profits are time-apportioned from the accounting periods that overlap the tax year.
Time apportionment: Profit for tax year = Σ (adjusted profit of accounting period × months of that period in the tax year ÷ months in the accounting period); Apportion to the nearest month, as the exam's supplementary instructions require.
Opening year: First tax year = profits from the date trading starts to the next 5 April; The second tax year is a full tax year, built by apportionment.
Closing year: Final tax year = profits from 6 April to the date trading ceases; Include all profits not yet taxed. Overlap relief from before 2024/25 was used in the 2023/24 transition year, so there is none to deduct on cessation. Apply only a transition-related adjustment if the question specifically gives one.
Change of accounting date: No special rule: apportion each accounting period that overlaps the tax year; Watch the number of months in any long or short period of account.

How to solve Basis Periods and Opening and Closing Year Rules questions

Use this method for any question that gives accounting-period profits and asks for taxable trading profits by tax year.

1Write down the tax years involved. Mark the start date, the accounting dates and any cessation date on a timeline.
2Confirm the adjusted profit for each accounting period. Use the figures after adjustments and capital allowances as the question gives them.
3For each tax year, list which accounting periods overlap it and count the months of each period inside 6 April to 5 April. For the first year, count from the start date. For the last year, count to the cessation date.
4Calculate the slice from each period: profit × months in the tax year ÷ months in the period. Round to the nearest £.
5Add the slices to get the taxable profit for each tax year. Show every working, because marks go to workings.
6Check that every month of profit is taxed exactly once. The months across all tax years should match the months of trading.
7Make any adjustment the question specifically gives, such as transition profits, in the right year. Do not deduct overlap relief in the final year, because it was used in the 2023/24 transition year. Then state the final figure for each year.

Quickest way: Monthly timeline method

When to use it: Use it when accounts are drawn up to a date other than 5 April and you must work out profits for two or three tax years in a short time.

Draw a line of months from the start date to the cessation date or the last year needed.
Mark each 5 April and each accounting date.
Under each period write the monthly rate: profit ÷ months.
Multiply the monthly rate by the number of months falling in each tax year.
Total each tax year, then check that the months used add up to the total months of trading.

Common mistakes in Basis Periods and Opening and Closing Year Rules

Calculating overlap profits for a new business that began after the transition
Older notes and past papers cover the current year basis, so students apply those rules from habit.
Fix: Under the tax year basis a new business has no overlap profits. Check that each month of profit is taxed once and stop there.
Using the accounting period profit as the tax year profit
Students forget that the basis period is now the tax year itself, not the accounting period ending in it.
Fix: Always time-apportion. Even a 30 June year end needs 3 months of one period and 9 months of the next in each tax year.
Counting the wrong number of months in the opening or closing year
Students count from the wrong date, or include a month that is only partly worked.
Fix: Count from the start date to 5 April, or from 6 April to the cessation date. Round to the nearest month and write the count down.
Inventing special rules for a change of accounting date
Students remember the old rules about a 12-month basis period for the year of change.
Fix: Under the tax year basis there is no special rule. Apportion the overlapping accounting periods, including any long or short period, by months.
Missing profits in the final year
Students stop at the last full accounting period and ignore the short period to cessation.
Fix: The final year takes 6 April to cessation. Add the last accounting period's months and any slice of the previous period.
Treating a provisional profit as final
Students forget that profits for a tax year may depend on an accounting period that has not yet ended.
Fix: Say that a provisional figure is used and will be replaced by the actual figure when the accounts are complete, if the question suggests it.

Worked examples

Example 1

Asha starts trading on 1 September 2025 and makes up accounts to 31 August. The adjusted profit for the year to 31 August 2026 is £48,000 and for the year to 31 August 2027 is £60,000. Calculate her taxable trading profits for 2025/26 and 2026/27.

Show the solution

2025/26 is the opening year. The basis period runs from 1 September 2025 to 5 April 2026, which is 7 months.
2025/26 profit = 7/12 × £48,000 = £28,000.
2026/27 is a full tax year from 6 April 2026 to 5 April 2027.
The year to 31 August 2026 covers 6 April to 31 August 2026, which is 5 months: 5/12 × £48,000 = £20,000.
The year to 31 August 2027 covers 1 September 2026 to 5 April 2027, which is 7 months: 7/12 × £60,000 = £35,000.
2026/27 profit = £20,000 + £35,000 = £55,000.
Check: 7 months in 2025/26 and 12 months in 2026/27 total 19 months. The first AP (12 months) is fully taxed across the two years and 7 months of the second AP are taxed in 2026/27, with the remaining 5 months falling in 2027/28. Each month is taxed once.

Answer: 2025/26: £28,000. 2026/27: £55,000. There are no overlap profits.

Example 2

Ben has traded for many years with a 30 June year end. He ceases trading on 30 November 2026. Adjusted profits are: year to 30 June 2025 £48,000; year to 30 June 2026 £60,000; 1 July 2026 to 30 November 2026 £20,000. Assume there is no unused overlap relief. Calculate his taxable trading profits for 2025/26 and 2026/27.

Show the solution

2025/26 runs from 6 April 2025 to 5 April 2026.
The year to 30 June 2025 contributes 6 April to 30 June 2025, which is 3 months: 3/12 × £48,000 = £12,000.
The year to 30 June 2026 contributes 1 July 2025 to 5 April 2026, which is 9 months: 9/12 × £60,000 = £45,000.
2025/26 profit = £12,000 + £45,000 = £57,000.
2026/27 is the final year, from 6 April 2026 to 30 November 2026.
The year to 30 June 2026 contributes 6 April to 30 June 2026, which is 3 months: 3/12 × £60,000 = £15,000.
The final period 1 July to 30 November 2026 is taxed in full: £20,000.
2026/27 profit = £15,000 + £20,000 = £35,000.
Check: every month of trading is taxed once, and no overlap relief is deducted.

Answer: 2025/26: £57,000. 2026/27: £35,000.

Exam tips

Draw a timeline first. It takes under a minute and avoids the commonest month-counting errors.
Show each apportionment as a fraction × profit. Method marks are available even if one figure is wrong.
Ignore old overlap profit and second-year rules. Overlap relief was used in the 2023/24 transition year. Apply a transition-related adjustment only if the question gives one, and say clearly how you treat it.
For a change of accounting date, state that there is no special rule and apportion the overlapping periods. Professional skills marks go for clear, concise explanations.
Use the exam's rounding rule: apportion to the nearest month and calculate to the nearest £.

Practice questions from Income tax: income from self-employment

Basis Periods and Opening and Closing Year Rules in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsBasis of Assessment and Opening Years Rules

Basis Periods and Opening and Closing Year Rules: frequently asked questions

What is the basis period for a sole trader now?

The basis period is the tax year itself, 6 April to 5 April. You time-apportion the profits of the accounting periods that overlap the year. In the first year it starts on the date trading begins, and in the last year it ends on the cessation date.

Do I still need to calculate overlap profits?

Not for a new business that starts under the tax year basis. Each month of profit is taxed once, so no overlap profits arise. Overlap relief from before 2024/25 was used in the 2023/24 transition year, so you do not deduct any in the final year.

How does a change of accounting date work?

There is no special rule under the tax year basis. You apportion each accounting period that overlaps the tax year by months. A long or short period of account is handled the same way.

What happens in the final tax year?

The basis period runs from 6 April to the date trading stops. It includes all profits not yet taxed, such as the slice of the last full accounting period and the short final period. Overlap relief was used in the 2023/24 transition year, so none is deducted. Apply only a transition-related adjustment if the question specifically gives one.