Help there is something going on with basis Period

Antoinnette

Hi there,
I have just completed the tax return for a new client who has drawn my attention to the fact that her previous accountants used to prepare the accounts on a basis periods instead of accounting periods. So the accounts are always one year behind. She started trading in the 90's and her accounting period is 01/05-30/04
As this doesn't seem to be that far out of the normal accounting period I wonder why the basis period is always one year behind. So her 2012 returns were based on 2010-2011 figures. Is this right? I am a bit confused :confused1:

jamesm96

Antoinnette wrote: »

Hi there,
I have just completed the tax return for a new client who has drawn my attention to the fact that her previous accountants used to prepare the accounts on a basis periods instead of accounting periods. So the accounts are always one year behind. She started trading in the 90's and her accounting period is 01/05-30/04
As this doesn't seem to be that far out of the normal accounting period I wonder why the basis period is always one year behind. So her 2012 returns were based on 2010-2011 figures. Is this right? I am a bit confused :confused1:

So, are you saying that the client's tax return for 5 April 2012 shows the accounting figures from the accounts period ended 30 April 2011?

As long as the 'opening year rules' were correctly followed then that's fine; once you get past the first couple of years, the 'basis rules' should always just mean that the information for the tax return is based on the accounting period end-date which falls during the tax year.

That said, I fail to understand why anyone would use different dates and suffer the overlap tax!

If it helps, I found this which just summarises the opening year rules.

Antoinnette

jamesm96 wrote: »

So, are you saying that the client's tax return for 5 April 2012 shows the accounting figures from the accounts period ended 30 April 2011?

As long as the 'opening year rules' were correctly followed then that's fine; once you get past the first couple of years, the 'basis rules' should always just mean that the information for the tax return is based on the accounting period end-date which falls during the tax year.

That said, I fail to understand why anyone would use different dates and suffer the overlap tax!
.

YES! The accounts for 2012 are based on 30 April 2011. And the year before as well......
They are a big accounting firm so I am pretty certain the opening year rules were followed. I supposed as the last date is April 2012 they are counting backwards and putting the whole year in April 05 2012 although its just 5 days in that year. I wouldnt do it that way bit it seems to be the way they have done it. And If I dont follow it we will be missing one whole year's returns or incurring penalties for late returns that are not exactly late if you see what i mean

jamesm96

Antoinnette wrote: »

YES! The accounts for 2012 are based on 30 April 2011. And the year before as well......
They are a big accounting firm so I am pretty certain the opening year rules were followed. I supposed as the last date is April 2012 they are counting backwards and putting the whole year in April 05 2012 although its just 5 days in that year. I wouldnt do it that way bit it seems to be the way they have done it. And If I dont follow it we will be missing one whole year's returns or incurring penalties for late returns that are not exactly late if you see what i mean

Them's the rules I'm afraid... once you're past the opening years, the rule is that you use the annual accounts for whichever accounting period ends during the tax year. So, although it's only just in the tax year, the accounting period ended 30 April 2012 is the one you should use for the tax year to 5 April 2013.

Antoinnette

I will just have to call and ask them how that came about:ohmy: Not looking forward to it at all

jamesm96

Antoinnette wrote: »

ask them how that came about

No no, it's not a choice matter or anything that the client or previous accountant can chose or influence. If the accounting period ends 30 April then, once established, the tax return for 5 April 201Y will be prepared using the accounting information for the accounting period ended the previous 30 April, i.e. 30 April 201X (because the following 30 April will be outside the tax year.

Its all about which tax year the accounting end date finishes in.

Antoinnette

Thanks a lot James! Finally got my head round it. And I didn't call them. Phew :-)
I still couldnt get it until you did the Y X thing with the dates:001_tt2:

deanshepherd

Some firms run clients accounts to 30th April by default.

It means you are effectively getting an 11 month delay in your tax cycle. For early stage businesses with rapid growth this can be a significant cash-flow advantage.

When profits start to level out (or perhaps even decline) you can look to move the accounting year end closer to 5th April to catch-up and release overlap profits.

All good fun!

JodieR

The extra tax paid on overlap profits in the first year will only be a burden to the business if they made a lot of money in the first year - often the first year will have small profits or even a loss, in which case what Dean says can be very good tax planning advice.