Transition Profit Calculator, 2026/27

How this is calculated

Basis period reform moved all unincorporated businesses onto a tax-year basis from 2024/25, meaning profits are now taxed based on the actual tax year rather than the business's own accounting year end. Businesses whose accounting year end was not 31 March or 5 April had a transitional year, 2023/24, in which they were taxed on more than twelve months of profit, with the excess called transition profit.

To avoid a single enormous tax bill in that one year, transition profit is spread evenly across five tax years by default, 2023/24 to 2027/28, unless the taxpayer elects to accelerate more of it into an earlier year, for example to use up spare personal allowance or basic rate band.

Any overlap relief brought forward from the old rules, representing profit taxed twice under the previous basis period system, is deducted from the transition profit first, reducing the amount that needs to be spread.

Why this still matters in 2026/27

For businesses that had a substantial transition profit in 2023/24, a fixed slice of it is still landing in each subsequent tax return through to 2027/28, adding to ordinary trading profit for that year and needing to be planned for alongside normal income tax and Class 4 National Insurance.

Because transition profit adds to total income for tax band purposes, it can push someone who would otherwise be a basic rate taxpayer into the higher rate band for the years it is being spread, which is easy to overlook if only the underlying trading profit is being monitored.

Practical points for affected businesses

It is worth reviewing each year whether it makes sense to accelerate more transition profit into a lower-income year rather than sticking rigidly to the even five-year spread, particularly if a business expects rising profits or other income later in the period.

Businesses that changed their accounting year end to align with the tax year at the point of reform will have already crystallised their transition profit calculation; those still using a non-aligned year end may want specific advice on how ongoing profit interacts with the remaining spread.

What is transition profit?

It is the extra profit taxed in the 2023/24 transitional year for businesses whose accounting year end was not 31 March or 5 April, arising because basis period reform moved everyone onto a tax-year basis in that year.

Over how many years is transition profit spread?

It is spread evenly across five tax years by default, from 2023/24 to 2027/28, though you can elect to bring forward a larger share into any of those years if that suits your circumstances better.

Does overlap relief reduce transition profit?

Yes, any overlap relief built up under the old basis period rules is deducted from the transition profit before the five-year spread is calculated, reducing the amount taxed overall.

Does transition profit affect payments on account?

No, transition profit is specifically excluded from the calculation used to set payments on account, though it is included in total income for other purposes such as the personal allowance taper and means-tested benefits.