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Basis period reform: the transition profit slice still landing on your 2026/27 return

By Buzz Accounting · 2026-09-23

If your accounting year runs to 30 June, 31 December, or any date other than 31 March or 5 April, you may still be paying tax on something that happened back in the 2023/24 tax year — and you'll keep paying it, in slices, until 2027/28. This is basis period reform, and unlike most tax changes it doesn't land once and finish. It lands once and then reappears on your return every year for five years, at a fixed 20% a time, unless you actively tell HMRC to bring more of it forward.

A lot of freelancers filed their transition-year return in early 2025, saw a manageable-looking number, and assumed that was the whole story. It wasn't. Here's exactly where the remaining slices sit, what lands on your 2026/27 return specifically, and the one relief that stops it being worse than it looks.

Why your profit doesn't match your invoices, even now

Before 2023/24, a freelancer with a 30 June year end was taxed, in any given tax year, on the accounting year ending in that tax year — so their 2022/23 tax return used profit from the year to 30 June 2022, nine months out of date by the time the tax year even started. Basis period reform ended that: from 2024/25 onwards, everyone is taxed on profit actually earned in the tax year itself, 6 April to 5 April, regardless of when their accounts are drawn up.

Getting from the old system to the new one in a single tax year meant taxing more than twelve months of profit in 2023/24 for anyone not already aligned to the tax year. HMRC split that excess into a one-off transition profit and, rather than taxing all of it in 2023/24 in one go, spread it automatically over five tax years by default.

The mechanics in three parts

The standard part — profit for the normal 12-month accounting period ending in the tax year, taxed as usual, no different to any other year.
The transition part — profit for the extra months between your old accounting date and 5 April, needed to bring you up to a full tax-year basis.
Overlap relief — profit from your opening years that was taxed twice under the old rules, carried forward specifically to be set against a moment like this. It's deducted from the transition part before anything else happens, and for anyone who's been trading a long time it can cancel out a meaningful chunk of it.

Standard part plus net transition part (transition profit minus overlap relief) is your total profit for 2023/24 — except the transition part doesn't all get taxed that year. By default, only 20% of it is added to your 2023/24 profit. The remaining 80% is spread in equal 20% slices across 2024/25, 2025/26, 2026/27 and 2027/28.

Where you are right now

The five-year run is 2023/24, 2024/25, 2025/26, 2026/27 and 2027/28. As of today, the return you're most likely still working on or about to start is for 2025/26, due by 31 January 2027 — that's the third of the five 20% slices. The tax year you're actually trading through right now, 2026/27, is the fourth, and it will land on the return due 31 January 2028. Only one slice remains after that.

Worked example: a consultant's £33,000 transition profit

The figures are illustrative; the mechanics and 2026/27 rates are real. A marketing consultant has always drawn accounts to 30 June. For the transition year, her standard part — the year to 30 June 2023 — produced £54,000 of profit. The transition part, covering 1 July 2023 to 5 April 2024, produced a further £42,000. She had £9,000 of overlap relief carried forward from her opening years, reducing the transition part to a net £33,000.

Spread over five years at 20% a time, that's £6,600 added to her taxable profit in each of 2023/24, 2024/25, 2025/26, 2026/27 and 2027/28 — on top of whatever she earns from ongoing trading in each of those years. If her underlying trading profit for 2026/27 comes in around £58,000, her return for that year reports £64,600: £58,000 standard profit plus the £6,600 fourth slice. Because £58,000 alone already sits above the £50,270 higher-rate threshold, the whole £6,600 slice is taxed at her marginal rate — 40% income tax plus 2% Class 4 National Insurance, a combined 42%, or £2,772 of tax and NI on the slice alone.

The relief that stops this being worse than it looks

Transition profit is genuinely liable to Class 4 National Insurance, so the £2,772 above is real. But HMRC excludes transition profit from your "net income" for two specific purposes that catch a lot of people by surprise: it does not count towards the £60,000 to £80,000 threshold used for the High Income Child Benefit Charge, and it does not count towards the income figure used to taper your pension annual allowance. It does still count as relevant UK earnings for the purposes of getting tax relief on pension contributions, so paying into a pension around a slice year still works exactly as it would any other year — our pension guide covers how that relief is claimed. The upshot: a transition slice can push your headline profit figure up without dragging you into HICBC territory or cutting your pension allowance, even though it still costs real income tax and Class 4 NI.

You can still accelerate — one year at a time

The 20% default isn't fixed once you've filed the 2023/24 return. You can elect, year by year, to bring forward more than 20% of whatever's left — useful if a quiet year means some of it would otherwise be wasted against unused personal allowance, or if you know a big year is coming and would rather clear the slice now at a lower marginal rate than later at a higher one. The election for a given tax year has to be made within twelve months of that year's normal filing deadline. You cannot push profit the other way, into a later year than the default schedule — only forward, never back.

What to do this week

Check your accounting year end. If it's already 31 March or 5 April, none of this applies to you — you were aligned from the start.
If it isn't, find your 2023/24 transition profit figure from that year's return or your accountant's working papers, and confirm the annual 20% slice amount.
Work out whether your 2026/27 trading profit, plus that fourth slice, pushes you into a higher marginal band than you were expecting, and set tax aside accordingly.
If 2026/27 or 2027/28 is shaping up to be a quieter year than usual, ask whether accelerating some of the remaining slice into it would use up otherwise-wasted allowance.
Don't let the HICBC or pension-taper exclusion make you complacent about the Class 4 NI bill — that part is real and due alongside everything else on 31 January.

Our first Self Assessment guide and tax calendar cover the filing deadlines this sits alongside. We track your remaining transition slices year to year, decide with you whether accelerating makes sense, and make sure the Class 4 NI on each slice is budgeted for rather than discovered in January. Fixed fees from £19 + VAT a month. Get started.

Quick answers

About this post

What is basis period reform and does it still affect me in 2026/27?

Basis period reform moved everyone's taxable profit onto a tax-year basis (6 April to 5 April) from 2024/25 onwards. It still affects you in 2026/27 if your accounting year doesn't end on 31 March or 5 April, because a one-off transition profit calculated back in 2023/24 is, by default, spread evenly over five tax years: 2023/24, 2024/25, 2025/26, 2026/27 and 2027/28. If your accounting date was already 31 March or 5 April, there was no transition profit and nothing carries forward onto your return.

What is a transition profit slice?

It's a 20% portion of a one-off profit figure created when the tax system moved from taxing whichever accounting year ended in a tax year, to taxing profit actually earned within the tax year itself. Anyone whose accounts didn't already end on 31 March or 5 April had extra months of profit that needed taxing once, in 2023/24, to catch everyone up. Rather than tax it all in one go, HMRC spreads it in five equal 20% slices, added on top of ordinary trading profit in each of the five tax years from 2023/24 to 2027/28.

Which tax year's return carries the fourth slice?

The 2026/27 tax return, covering the year from 6 April 2026 to 5 April 2027 and due for filing by 31 January 2028. The five slices run in order through 2023/24, 2024/25, 2025/26, 2026/27 and 2027/28, so if you're currently trading through the 2026/27 tax year, you're partway through the fourth of five. Only the 2027/28 slice remains after that, closing out the transition permanently and leaving your profit reported on a straightforward tax-year basis from then on, with no further adjustment to plan around.

Does the transition profit slice count towards the High Income Child Benefit Charge?

No. HMRC specifically excludes transition profit from the net income figure used to work out whether you're inside the £60,000 to £80,000 High Income Child Benefit Charge taper. A slice can push your headline reported profit up without on its own tipping you into that charge, though your ordinary trading profit for the year still counts as normal. It's one of two specific exclusions built into the rules; the other covers pension annual allowance tapering, and both exist so a one-off transition adjustment doesn't unfairly drag someone into charges tied to their genuine, ongoing income.

Do I still pay National Insurance on a transition profit slice?

Yes. Despite being excluded from net income for High Income Child Benefit Charge and pension-taper purposes, transition profit is fully liable to Class 4 National Insurance in the year it's taxed, at the normal rates and thresholds for that year. In a worked example where a £6,600 slice lands entirely in the 40% higher-rate band, the Class 4 NI due on that slice alone is 2%, alongside the 40% income tax, for a combined 42% on that portion of profit.

Can I choose to pay off my remaining transition profit faster?

Yes. You can elect, separately for each tax year, to bring forward more than the default 20% of whatever transition profit is left, right up until the whole amount is cleared. The election for a given tax year must be made within twelve months of that year's normal Self Assessment filing deadline. It can only accelerate profit into an earlier year than the default schedule intended, never defer it into a later one, so it suits people expecting a bigger tax bill ahead more than people hoping to push the cost further away.

What if I never had a transition profit in the first place?

Then none of the five-year spreading applies to you, and your 2026/27 return works exactly as any other year's would. This only affects freelancers, contractors and consultants whose accounting year end wasn't already 31 March or 5 April at the point basis period reform took effect in 2023/24. If you started trading after the reform and chose a tax-year-aligned accounting date from day one, or you'd always used one, there was no transition part to calculate and nothing has been spreading in the background.

Where can I find my remaining transition profit figure?

It should be on the working papers or computation attached to your 2023/24 tax return, alongside the standard part, transition part and any overlap relief deducted. If you don't have it to hand, we can reconstruct it from your 2023/24 and 2024/25 returns and confirm exactly how much is still to come across 2026/27 and 2027/28, and whether accelerating any of it would suit your circumstances better than leaving it on the default schedule. It's worth checking now rather than at the next filing deadline.

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