The Slice You Forgot About

In September 1752, Britain went to bed on the second and woke up on the fourteenth.

The country had finally abandoned the Julian calendar, which had drifted eleven days out of step with the sun, and adopted the Gregorian one that most of Europe had been using since 1582. Parliament simply deleted the intervening days. The popular story that mobs rioted demanding their eleven days back is largely a myth, embellished from a Hogarth painting, but the disruption to contracts, rents and quarter days was real enough.

It created one problem the Treasury cared about a great deal. The financial year had always ended on Lady Day, 25 March. Losing eleven days from the calendar meant losing eleven days of revenue, and the Treasury was not prepared to do that. So the year end was moved forward by eleven days, to 5 April, where it has sat ever since.

That is the entire explanation for the strangest date in British public life. It is a transitional adjustment from 1752 that nobody has got round to undoing.

We are living through another one

Basis period reform did something structurally similar, though with rather more consultation.

Until 2023/24, a self-employed barrister was taxed on the profits of the accounting year ending in the tax year. If your accounts ran to 30 April, as most of the Bar's did, the 2022/23 tax year taxed the year to 30 April 2022. There was a long lag, and at the start of practice it produced overlap profits that sat on the books for decades waiting to be relieved.

From 2024/25 everyone is taxed on profits arising in the tax year itself. Getting from one system to the other required a transition year, and in that year people with a 30 April year end were assessed on roughly twenty-three months of profit, less whatever overlap relief they had accumulated.

Twenty-three months of profit in one year would have been brutal, so the excess, called transition profit, is spread across five tax years from 2023/24 to 2027/28. Which means a slice landed on your 2026/27 return, and the final one arrives in 2027/28, on a set of accounts that otherwise looks entirely ordinary.

The good news, which is genuinely good

Transition profits are not treated like ordinary income. They are deliberately excluded from net income, with a standalone charge added later in the income tax computation to collect the tax that would otherwise have been due.

That exclusion does real work.

Because the annual allowance taper is calculated on net income, transition profits should not reduce your annual allowance. If you were braced for the slice to drag you further into the taper, it shouldn't. The same logic applies to the high income child benefit charge.

And there is a second effect that runs the other way. Transition profits do count as relevant UK earnings for pension tax relief. So while they don't shrink your allowance, they may increase the amount you can contribute with relief. For anyone with unused allowance available to carry forward, that combination is worth understanding properly rather than discovering afterwards.

The less good news

The personal allowance taper is not so easily avoided. Because the standalone charge is worked out by comparing the tax payable with the transition profits inside net income against the tax payable with them outside it, the effect of losing your personal allowance above £100,000 is still felt in that comparison. The exclusion doesn't rescue you there.

Class 4 National Insurance includes transition profits. Student loan repayments are calculated on income that includes them.

None of which is catastrophic. But it does mean the slice is not invisible, and anyone who has been told it simply "doesn't count" has been told something too simple.

The one that catches people

Any transition profit still untaxed when you cease to trade is charged in full in the year of cessation.

For most self-employed people that means retirement. At the Bar it also means the bench. A barrister appointed to the High Court or Circuit Bench in 2026/27 or 2027/28 ceases self-employment, and every remaining slice crystallises in that year, on top of whatever the final year of practice produced, in the same year the judicial salary begins.

Appointment is not usually a surprise. The tax consequence often is.

What to do about it

Very little, other than know it's there. The spreading is automatic, the amounts are already determined, and the only real election is to accelerate the charge, which is occasionally useful and usually not.

What it does affect is planning that depends on knowing your income. If you're sizing a pension contribution, working out whether you're inside the taper, or reserving for a tax bill, the transition slice needs to be in the picture, in the right place, doing the right thing. It behaves differently from ordinary profit and the difference cuts both ways.

Two more returns and it's gone. The tax year will still end on 5 April, for reasons that stopped making sense in 1752.

This article is general information based on tax legislation in force at the date of publication, which may change. Anyone with transition profits still to be assessed should take specific advice from an accountant familiar with the Bar's receipts basis, particularly where cessation of practice is in prospect.

Altor Wealth Management LLP advises barristers and other self-employed professionals from our offices in Hook, Hampshire, and across Surrey, Berkshire, Sussex and Kent.