Change of Accounting Year End Date/Basis Periods

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
Never my strong subject:
My client has an accounting year end of 31st May - he wants to change to 31st March. This will mean that his accounting year of 1st June 2005 to the 31st May 2006 will become 01.06.05. to 31.03.07. - 22 months. Can anyone help me here. How will this affect his tax bill?

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Change of Accounting Year End Date/Basis Periods

    Hi TC

    First thing here, the change in accounting date cannot exceed 18 months (there are certain other conditions as well), so in this case you will prepare accounts:-

    01.06.05 - 31.05.06 (12 months)
    01.06.06 - 31.03.07 (10 months)

    All of the above trading profit falls within tax year 2006/07, all of it is taxable in this year. However, there should be overlap profits brought foward and as the year end date is changing to the 31 March, you will be able to relief all of these.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Change of Accounting Year End Date/Basis Periods

    Where can I find out more about basis periods - it was never my strong subject.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Change of Accounting Year End Date/Basis Periods

    Basis periods should be in the Business tax book for AAT :?

    If you want a more in depth approach, you will find it in the legislation, it starts at chapter 15, Schedule 196 of ITTOIA.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Change of Accounting Year End Date/Basis Periods

    I've had the same question asked by a client today so can give you a couple of brief pointers relating to basis periods.

    I'll just quickly outline them here - they may or may not be relevant to your client.

    First Year
    The period which is recognised for tax purposes is simply profits from the date of trade that started to the following 5 April.

    Second Year
    You have to establish if there is an accounting period ending in the second year i.e. has trader drawn up a set of accounts which end between 6/4 and 5/4 in the second tax year of tading. If they have you need to establish how long that accounting period is. If it is equal to or more than 12 months, tax the profits for the first 12 months leading up to that accounting date, if it is less tax the profits of the first 12 months of trading. If there isn't an AP ending in the 2nd tax year of trade, then the basis period for the 2nd tax year is that actual tax year i.e. 6/4 to 5/4.

    Third year
    By third year of trading, the trader should be on current year basis i.e. tax the profits of the 12 month accounting period ending in the tax year. Note, however, this does not apply if the second years basis period is actually the 2nd tax year - if this is the case tax the profits of the 12 months to the accounting date.

    Fourth year
    Trader should be on current year basis.

    Basis periods are quite complicated and Dean is right to draw your attention to overlap relief which may be available to your client.

    Kind regards
    Steve

Categories

Privacy Policy