Self Employmnt - Year End

essex girl

Hi,
I wasn't sure where to post this so I have put it in both sections.........

Can someone give me advice on a year end date as I don't normally deal with self employed people.

Self employed plumber started his business 6th October 2007. He was previously employed from April - October 2007. He recieved a tax return earlier this year for 2007/08. Obviously 6 months earnings will be declared from his P60 and 6 months self employment. For ease - can he change his first year end to April 2008 so that I can calculate his self employed earning for half a year (Oct 07 -April 2008) and then when he gets his tax return for 2008/09 just do one full year of self employment. (April - March)

Can I do this and what, if any, are the drawbacks?

Thanks.

Poodle

Hi Essex Girl

There is nothing wrong with doing what you suggest i.e. taking the first period of self employment from commencement to the 5th April. When I do this I go to the 1st March though since you are allowed to take the 1st to the 5th April into the following tax year.

It is often of benefit to the newly self employed since there is often a loss in the self employment in this small initial period that you are able to relieve as normal but with the addition of s381. The trader will be happy to get tax back sooner rather than wait for a complete year of trading if cash is an issue and it normally is at this stage.

However, having said that. If the self employment is experiencing continually growing profits then it may be better to go to the complete year end, pro-rata for 2007-08 and then use the first full accountng period as the basis period for 2008-09. This will delay the amount of tax paid.

I always go with the rule if you have paid tax get it back as quickly as possibly and if you have to pay it delay payment for as long as possible.

I am sure that others may have more to add but I hope this helps.

Poodle

essex girl

Poodle wrote: »

Hi Essex Girl

There is nothing wrong with doing what you suggest i.e. taking the first period of self employment from commencement to the 5th April. When I do this I go to the 1st March though since you are allowed to take the 1st to the 5th April into the following tax year.
It is often of benefit to the newly self employed since there is often a loss in the self employment in this small initial period that you are able to relieve as normal but with the addition of s381. The trader will be happy to get tax back sooner rather than wait for a complete year of trading if cash is an issue and it normally is at this stage.

However, having said that. If the self employment is experiencing continually growing profits then it may be better to go to the complete year end, pro-rata for 2007-08 and then use the first full accountng period as the basis period for 2008-09. This will delay the amount of tax paid.

I always go with the rule if you have paid tax get it back as quickly as possibly and if you have to pay it delay payment for as long as possible.

I am sure that others may have more to add but I hope this helps.

Poodle

Thank you for the reply Poodle. But did you mean 31st March? Also I have looked for information on S381 but I am still not sure what it is. Is it only applicable for a loss in the year? As I said, I really do not do a lot with self employment.

Thanks again.

DaveP

S381 ICTA 1988 is now S72 ITA 2007 for individuals. It is just the legislation that covers setting off losses against other income.

I would be surprised if, after 6 months of trading, a plumber made a loss. They charge more than we do!

Monsoon

Much easier all round to take first year end as 31st March (considered as 5th April) and prepare accounts annually to that date thereafter.

As Poodle says, it can be tax efficient to do a full year and then have fun with basis periods, but you can only know this by looking at the figures

Jenni

Poodle

Hi Essex Girl

Yes I did mean the 31st March

and yes.... its now S72 ITA 2007

Must be suffering under the spam!!!

Poodle