Basis period

The basis period is the period on which a sole trader calculates their tax each year. You calculate both your income and expenses during this 12-month stretch. If you’re self-employed, you can choose your own basis period.

Can I choose any basis period?

Here are the different periods to choose from:

• The standard tax year from 6th April – 5th April the following year
• From 1st April – 31st March the following year
• A custom start and end date like 1st January – 31st December

Be aware though that using a custom period can be complicated. One of the common risks is ending up being overtaxed and having to claim it back. This happens because not every basis period will overlap 100% with the normal tax year. It’s therefore best to only use a custom basis period if you have a solid reason to do so.

What does this mean in action?

If you choose your own basis period based on when you start your business, you’ll most likely end up having to pay tax twice. This is not to say that you can’t claim it back, but it adds a layer of complexity that you don’t necessarily need. To claim back any duplicated tax you pay, you can claim Overlap Relief via HMRC.

Here’s how it works 👇

You should first be aware that the standard tax year goes from 6th April – 5th April. If you were to start your business on 5th November 2024 and make your basis period between 5th November – 4th November, the first tax calculation is probably not what you think. It’s from 5th November 2024 – 5th April 2025 🤯

The next taxable period that you calculate will be 5th November 2024 (yes, the same one you’ve just calculated from) to 4th November 2025. The one after that will be 5th November 2025 – 4th November 2026, and so on. 

That crossover between November 2024 and April 2025 where you pay twice is the reason most people choose not to deviate from the standard tax year.