Basis Period Reform for Trading Income in the UK Income Tax System

Income tax is assessed based on income generated during the tax period. In the UK income tax system, the tax period for trading income uses a unique method which is called “basis period”. With this method, income is calculated in the accounting year selected by the taxpayer, and the income is attributed to the tax year (April 6 to April 5 of the following year) to which the accounting date of the accounting year belongs. On the other hand, the Japanese income tax system is adopting a calendar year (January 1 to December 31) uniformly for all incomes including business income.
This paper describes the mechanism and problems of attributing trading income to the tax year, and explains main points of the basis period reform currently in progress in the UK. I will discuss the significance of this reform and its implications for Japan.