Basis periods

Re:Basis periods

Dean wrote:

Hiya Adrian, looks like you've slighty got confused, anyway here's an example.

A business commences trading on the 01.01.05 and draws his first set of accounts to 30.09.06.

Year 1
Basis period:-
01.01.05 - 05.04.05
Tax Year:-
2004/05

Year 2
Basis period:- (is there an accounting period ending in the tax year? No.)
06.04.05 - 05.04.06 (12 months - whole of the tax year)
Tax Year:-
2005/06

Year 3
Basis period:- (again is there an accounting period ending in the tax year? Yes.)
??.??.?? - 30.09.06 (make it 12 months!)
01.10.05 - 30.09.06

Does that help?

Would we have overlap profits to c/f here? If so what period of overlap would you have?

Regards

Dean

Thanks alot for replying.

Year 1 - Piece of cake, as it is always from the start of trading to the end of that tax year (05th April).

Year 2 - Difficult bit. Basically works like this:
a) Is there an accounting date ending in the 2nd tax year?
No - basis period is the tax year (6th April to 5th April)
If yes then:
b) Is there at least twelve months of trade to the accounting date?
Yes - use the 12 months to the accounting date.
No - use the 12 months from the start of trade.

I've just knocked that lot off the top of my head but i'm 99% sure it's right.

Year 3 - heres where I get confused.

I'll write down exactly what it says in my book:

"3. either a) current year basis (if possible).
b) 12 months to the accouting date in the third tax year."

But that is all it says! re. the bit it puts in brackets (if possible) when it would not be possible to have the current year basis in the 3rd tax year?

I can't think of a situation where this decision would be necessary? The current year basis is the 12 month accounting date ending in that year, and 12 months to the accounting date in the year would be the same thing?

To answer your question re' overlap profits there would be 6 months between the period 01.10.05 to 05.04.06.

No problem if this is a bit heavy, but when i've finished this degree and got back to work I should be able to come back and help out alot better on here.

Re:Basis periods

Say the periods were:-

01.01.05 - 30.09.07

What would the tax years and basis periods be then?

Okay here goes:

Year 1: 01.01.05 to 05.04.06

Year 2: The tax year in question is 06.04.06 to the 05.04.07, and there is no accounting date in that period. So the basis period must 06.04.06 to the 05.04.07.

Year 3: The tax year in question is 06.04.07 to the 05.04.07. There is no accounting date in that tax year either.

I'm confused, but if you're still sticking with me (and if you are I owe you bigstyle) this should highlight my misunderstanding.

I'll consider the two options my book gives.

1st option: Current year basis. My understanding is the current year basis is the accounting period up to the accounting date in that tax year. As there is no accounting date in that tax year I can't use the current year basis.

2nd option: The 12 months to the accounting date. I can't use the 12 months to the accounting date in the third year because there is no accounting date.

Arrrrggghh! I can't use either. Hopefully you can see what i'm doing wrong now.

Humble thanks for your help.

Re:Basis periods

Dean wrote:

If you can't use either you use the fascial year i.e. the tax year.

Your dates above were slighty out.

Year 1 - 2004/05
01.01.05 - 05.04.05

Year 2 - 2005/06
06.04.05 - 05.04.06

Year 3 - 2006/07
06.04.06 - 06.04.07

Year 4 - 2007/08
01.10.05 - 30.09.07

Is that any clearer?

Regards

Dean

Sorry was dumb of me to get the dates wrong.
In the third year because there is no accounting date you have gone from 6th april to 5th april again. This acutally make sense but i'm still not confident as I don't understand the book. It's two options that it gives are the "current year basis (if possible)" and "12 months to the accounting date in the third tax year", which as far as I undestand your answer uses neither for the third tax year.

However your example is a good one and I will use it to try and thrash it out with my lecturer tomorrow.

Thanks alot, you have helped me.

PS: your year 4 also has me going scranny? should that be 01.10.06 to 30.09.07?

Re:Basis periods

I had a chat with my lecturer. Of course your solution was correct, but I didn't really get a proper explanation from my lecturer as to why the book says what it says. At least I didn't grasp it if there was one. Anyway screw the book I know what i'm doing now, onto the next tax topic.

Thanks alot Dean.