If you changed to the tax-year basis with a non-March year end, your 2025/26 tax return normally includes a third 20% slice of your transition profit, and you can choose to bring forward more. That slice is taxable even though you did not earn the money this year, which is why it catches people out. Here is how to find your figure, check it, and decide whether to leave the spread alone.
Key takeaways
- Transition profit is taxed at 20% of the original amount each year from 2023/24 to 2026/27, with the balance in 2027/28.
- You can elect to bring more into a year, but that reduces the later slices rather than removing tax.
- The election deadline for 2025/26 is 31 January 2028, so you do not have to decide when you first file.
- If your business stops, the whole remaining balance falls into the final year.
What is transition profit?
Transition profit is the extra profit that arose in 2023/24 when sole traders and partners moved from being taxed on their accounting year to being taxed on the tax year itself. In that one year, you could be taxed on more than 12 months of profit. GOV.UK says the excess "is known as 'transition profit'" in its guidance on the changes, and that overlap relief can reduce it.
What remains is spread over five tax years. HMRC's Business Income Manual gives the default: 20% of the amount in each of the first four years, then the balance in 2027/28. This is the part most summaries miss for someone filing today: 2023/24 and 2024/25 are behind you, 2025/26 is due by 31 January 2027, and two slices remain after that.
Your options for the 2025/26 slice
| Option | What happens | When it may suit you |
|---|---|---|
| Leave the default spread | 20% of the original amount is taxed in 2025/26 | Your income is steady, or you expect lower income in later years |
| Elect to accelerate | More is taxed now, and later slices fall | This year's income is unusually low, or you expect higher tax rates later |
| Business ending | All of the remainder is taxed in the final year | Not a choice, but an event to plan for ahead of time |
Acceleration only moves profit between years. It is not a way to remove tax, and there is no universal right answer. The HS222 helpsheet sets out HMRC's rules for the 2025/26 year.
How to check your figure before you file
- Find your 2023/24 return or calculation. Look for the transition profit figure and any overlap relief deducted. HMRC's page on working out your transition profit explains the calculation.
- Check whether you accelerated anything. Past elections change what remains. If 2023/24 or 2024/25 included more than 20%, your schedule differs.
- Build a five-line schedule. One row per year, showing the amount taxed and the balance left. Keep it with your tax papers.
- Compare this year with the next two. Estimate income for 2026/27 and 2027/28, including any new business or rental income.
- Consider knock-on effects. Extra income can feed into your payments on account and other income-based calculations, some of which have special rules for transition profit. Check these before electing.
- Decide and record why. Keep a note of your decision, particularly if you plan to revisit it before the deadline.
Worked example: a five-year schedule
"Maya", an illustrative example and not a real client, is a self-employed designer with a 30 April year end. All figures are invented. After overlap relief, her transition profit was £17,500, so the default slice is £3,500 a year:
| Tax year | Default amount taxed | Balance left afterwards |
|---|---|---|
| 2023/24 | £3,500 | £14,000 |
| 2024/25 | £3,500 | £10,500 |
| 2025/26 | £3,500 | £7,000 |
| 2026/27 | £3,500 | £3,500 |
| 2027/28 | £3,500 | £0 |
Maya's 2025/26 was a quiet year because she took time out for family reasons, and she expects to be a higher rate taxpayer in 2026/27. Ignoring National Insurance and other effects, £3,500 taxed at 20% rather than 40% is £700 less income tax. So she looks at electing to bring an extra £3,500 into 2025/26, which would reduce the amount taxed in the later years. She does not have to make the decision by 31 January 2027, because the election deadline for 2025/26 is 31 January 2028, but she should still pay what she owes on time and amend if needed. Maya's result is specific to her income, and the sums would differ if her plans changed.
If you cannot find your 2023/24 figures, do not guess. Ask your previous accountant, look at the tax calculation in your HMRC online account, and use HMRC's guidance to rebuild the number. A wrong starting figure repeats on every return until 2027/28, so an hour spent checking it now can prevent several years of corrections.
Common mistakes
- Forgetting the slice entirely. It does not come from this year's accounts, so it is easy to leave off when you prepare your own return.
- Reusing last year's figures without checking. An earlier election changes the amount left. Our Self Assessment documents checklist helps you keep this to hand.
- Treating acceleration as a saving. It moves income between years. Any benefit depends on your rates in each one.
- Closing a business without planning. The balance becomes taxable in that year. See our guide on switching from sole trader to limited company if that is your reason for stopping.
- Leaving the review to January. Follow our 31 January countdown so that you have time to compare the options.
How we can help
We can check your schedule and model the options before you file. Personal tax returns start from £180/year on a fixed fee. See our personal tax service, check our pricing, or contact us with your 2023/24 figures.
Frequently Asked Questions
Does transition profit affect me if my year end is 31 March or 5 April?
Normally not. Transition profit arose where a business's accounting year did not line up with the tax year when the rules changed. If your accounts already ran to 31 March or 5 April, you generally had no extra profit to spread, though you should check your 2023/24 return if unsure.
How much is taxed on my 2025/26 return?
By default, 20% of your original transition profit is taxed in each of the first four years, with the balance in 2027/28. Unless you made an election to bring more forward, you should therefore normally expect another 20% slice on your 2025/26 return, due by 31 January 2027.
What is the deadline for electing to accelerate transition profit?
HMRC's Business Income Manual says an election must be made on or before the first anniversary of the normal Self Assessment filing date for the tax year. For 2025/26, this means by 31 January 2028. Run the numbers for that year and later years before you decide.
What happens if I stop trading before 2027/28?
Any transition profit not yet taxed comes into the tax year your business ends. That can produce a bigger bill in your final year than you may expect, at the moment when your trading income is stopping. If you plan to close, work this out well in advance.
Can overlap relief reduce my transition profit?
Yes. Overlap relief carried forward from earlier years was set against the transition profit, and only the remainder is spread. If you cannot find your overlap figure, HMRC has guidance on working out transition profit and on checking the details it holds for you. Ask your accountant if records are incomplete.
Related reading
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Schedule a consultation →Written by the Berber Accounts & Tax team, 124 City Road, London EC1V 2NX, United Kingdom.
Last reviewed: 31 October 2026.
This article is general information, not personal tax advice. Speak to a qualified accountant about your own circumstances before acting on it.