Basis period reform is treated as finished business. It is not. Any firm with a year end other than 31 March or 5 April is still taxing a slice of transition profit this year and next, and a partner who retires on or before 5 April 2027 pays the rest of it at once.
Article · 29 July 2026
Most partners think basis period reform ended in 2024. The transition year was 2023/24, and from 2024/25 all unincorporated businesses — including partners in partnerships and LLPs — have been taxed on a tax-year basis. That part is done.
What is not done is the transition profit. Where a firm's accounting date was not aligned to the tax year, the extra profit brought into charge in 2023/24, after overlap relief, is spread over five tax years from 2023/24 to 2027/28: at least 20% taxed in 2023/24, with the remainder spread equally over the following four years. That means a firm with a 30 April, 30 June or 31 December year end is still adding a slice of transition profit to each partner's taxable income in 2026/27 and 2027/28. It is real tax, on real cash, and it lands on partner reserves now.
A firm that already drew up accounts to 31 March or 5 April had no gap between its basis period and the tax year, so there was nothing to transition and nothing to spread. Everyone else has slices running. The further the year end sits from the end of the tax year, the larger the transition profit was, so a 30 April year end produced roughly eleven months of additional profit in the transition year and a 31 December year end roughly three.
Note that this attaches to the partner, not to the firm. Each partner's transition profit was calculated on their own share, net of their own overlap relief, and overlap relief varied enormously between partners depending on when they joined. Two partners in the same firm on the same profit share can have very different remaining slices, and a partner who joined recently may have almost none.
Take an LLP with a 30 April year end and an equity partner whose transition profit, after overlap relief, came to £120,000. The figures are illustrative.
At a marginal rate of 42% — 40% income tax plus 2% Class 4 National Insurance above the upper profits limit of £50,270 — the £24,000 slice costs that partner about £10,080 of tax in 2026/27, and the same again in 2027/28. A partner already into the additional rate band above £125,140 is at 47%, so £11,280 a year.
That is on top of tax on the year's actual profit share. For a partner drawing to the limit of what the firm distributes, it is the difference between a manageable January and an unpleasant one — and because it has been running quietly since 2024/25, it is often already absorbed into a reserve that nobody has recalculated.
Partners pay through Self Assessment with payments on account on 31 January and 31 July, calculated by reference to the prior year. So a rise in a partner's total liability does not just cost more in January — it feeds the following year's instalments too. The partner drawings and tax calculator takes a profit share and shows the reserve and the sustainable monthly drawings that go with it.
There is one hard edge in the transition rules: if the business ceases on or before 5 April 2027, all remaining untaxed transition profit is taxed in the year of cessation. The spreading stops and the balance accelerates into a single tax year.
Applied to the partner in the example above, ceasing in 2026/27 rather than continuing would bring both the 2026/27 slice and the 2027/28 slice — £48,000 — into that one year. At a 45% plus 2% marginal rate that is around £22,560 of tax in a single year, against roughly £11,280 if the spreading had continued, and it may push income through thresholds that were not in play before.
The practical point is about sequencing, not about tax planning. A partner heading for retirement needs the position worked through before the retirement date is fixed, because the date is the only variable left once it is agreed. Whether a particular partner's own notional trade has ceased for these purposes is a question to work out with the firm's accountants against the partnership agreement and the actual facts — but the time to ask is when the conversation starts, not when the return is prepared eighteen months later.
Three things follow.
Tax reserves need recalculating, partner by partner. A single firm-wide percentage applied to profit shares will be wrong for anyone still carrying transition profit, and wrong by different amounts for different partners.
Drawings policy has to absorb it. If the firm distributes on the basis of profit share less a flat reserve, the partners with the largest transition slices are the ones most likely to be short in January. That is a firm problem as soon as it becomes a demand for a loan from the firm.
Retirements and admissions need the tax question asked early. Both change what a partner's remaining transition profit does, and both are usually agreed on commercial terms months before anyone looks at the tax.
Transition profit is a known, finite number with an end date. The larger and more permanent drain on a partnership's cash is lockup — the work in progress and unpaid bills the firm is financing out of taxed profit every month. A firm that has never measured its lockup days is usually carrying several months of partner drawings inside them. Our guide to lockup sets out how to measure it and the lockup calculator puts a cash figure on it.
For the tax side, partner tax and drawings is what we do for firms that want reserves calculated rather than estimated, and our LLP page covers how we work with partnerships. The dates themselves — payments on account, the Accountant's Report, SRA renewal — are collected on the law firm tax and compliance calendar. This is general information, not advice on any individual partner's position.
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The change of basis finished; the tax on the transition did not. All unincorporated businesses, including partners in partnerships and LLPs, moved to a tax-year basis from 2024/25, with 2023/24 as the transition year. The additional profit brought into charge in that transition year, after overlap relief, is spread over five tax years from 2023/24 to 2027/28, with at least 20% taxed in 2023/24 and the remainder spread equally over the following four years. So a firm whose accounting date was not 31 March or 5 April is still adding a slice to each partner's taxable income in 2026/27 and again in 2027/28.
No, and a firm-wide assumption produces the wrong number. Transition profit was calculated on each partner's own share and reduced by that partner's own overlap relief, which depends on when they joined the firm and what the profit shares were at the time. A long-serving partner who joined when the firm had a 30 April year end can have substantial overlap relief; a partner admitted in 2022 may have very little transition profit at all. That is why a single firm-wide reserve percentage produces the wrong answer for most partners, and why the schedule needs to be partner by partner rather than firm-wide.
It can change a great deal, and the time to ask is before the date is agreed. If the business ceases on or before 5 April 2027, all remaining untaxed transition profit is taxed in the year of cessation rather than continuing to spread. On an illustrative £24,000 annual slice, ceasing in 2026/27 would bring £48,000 into a single tax year, which at a 47% marginal rate is roughly £22,560 of tax instead of about £11,280. Whether a particular partner's own position falls within the cessation rule depends on the facts and the partnership agreement, so it needs working through with the firm's accountants first.
Treat it as a separate line in each partner's tax reserve rather than folding it into a single percentage of profit share, so that partners can see the amount and see that it ends after 2027/28. Remember that partners pay through Self Assessment with payments on account on 31 January and 31 July calculated by reference to the prior year, so a higher liability in one year also raises the instalments in the next. Firms that distribute profit share less a flat reserve tend to find that the partners carrying the largest transition slices are the ones asking the firm for a loan in January.
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