Tax return

Hi,

Can somebody please explain how periods work?

If a business has a year end of October 31st, why does the tax return ask for the period ending April 5th and how do you treat this?

Comments

  • groundygroundy Trusted Regular Posts: 495Registered
    A year end of 31 October 2008 would be entered on the 5 April 2009 tax return. This is quite basic knowledge and I would advise you seek assistance with the tax work if you are unsure.
  • slackdaslackda Trusted Regular Posts: 460Registered
    CT Tax return or Personal?
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    If CT is it their first year?
  • groundy wrote: »
    A year end of 31 October 2008 would be entered on the 5 April 2009 tax return.

    This makes perfect sense. I'm not doing a tax return, I am just reading up on tax as I have no prior knowledge and would like to learn it. It would be for a sole trader in this example.
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    Get a copy of a business tax text book and read up on Basis Periods.
    Or google it.
    Takes a bit of getting your head round at first!
  • faerie9 wrote: »
    Get a copy of a business tax text book and read up on Basis Periods.
    Or google it.
    Takes a bit of getting your head round at first!

    I've just bought the book ‘Tax for Dummies’ which is pretty ok from a general public perspective. Is there any specific books I can get that are good at laying out P11D's, computations etc and look at tax from an accountant’s perspective?
  • Gem7321Gem7321 Experienced Mentor DevonPosts: 1,438MAAT, AAT Licensed Accountant
    Have you considered doing the AAT tax units?
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    Hi Don

    What it is Personal Tax will always be from 5th April to 5th April each year even if the year end is october (this would be for their personal Accounts which will read 31st October ****)
  • monkeypuzzle47monkeypuzzle47 Feels At Home Posts: 134MAAT, AAT Licensed Accountant
    Would just like to add that the tax year runs from the 6 April to the 5 April 09.
  • slackdaslackda Trusted Regular Posts: 460Registered
    A-Vic wrote: »
    Hi Don

    What it is Personal Tax will always be from 5th April to 5th April each year even if the year end is october (this would be for their personal Accounts which will read 31st October ****)

    Be a while since ive done any personal retunrs surely you would bridge the income , so take the income from Apr-Oct and oct-Apr?
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    Would just like to add that the tax year runs from the 6 April to the 5 April 09.

    Woops my bad totally correct :001_smile:
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    slackda wrote: »
    Be a while since ive done any personal retunrs surely you would bridge the income , so take the income from Apr-Oct and oct-Apr?

    It would be personal accounts 1 November **** to 31 Oct following year so yes
  • Gem7321 wrote: »
    Have you considered doing the AAT tax units?

    I have but I am doing CIMA after my final in June. I think it will be too much to study for them as well as 2 CIMA papers.
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    In a nutshell

    y/e 30th April 09, tax year 2009/10 (ends in that tax year)
    y/e 30th Dec 09, tax year 2009/10 (ends in that tax year)
    y/e April 2010, tax year 2010/11

    etc

    so one year of profits is assessed in one tax year, even though the period of the accounts is not in line with the tax year.

    You'll have to read up on the first few years treatment though as this is different and you would have to read through some examples and work through them.
  • So as an example:

    Sole trader starts trading 01/11/09 and their year end is 31/10/10. Should they have to fill out a tax return for the period 06/04/09 - 05/04/10 and if so, how would they fill it out on the basis they haven't any financial statements prepared?
  • Gem7321Gem7321 Experienced Mentor DevonPosts: 1,438MAAT, AAT Licensed Accountant
    Yes they would have to submit a TR for the period 1 Nov - 5 Apr 2010. Then in 2011 they would have to submit a TR for the period 1 Nov - 31 Oct 2010, so the profits between 1 Nov - 5 April 2010 are being taxed twice and are called overlap profits which will be relieved on cessation of the business in the final TR.
  • Gem7321 wrote: »
    Yes they would have to submit a TR for the period 1 Nov - 5 Apr 2010. Then in 2011 they would have to submit a TR for the period 1 Nov - 31 Oct 2010, so the profits between 1 Nov - 5 April 2010 are being taxed twice and are called overlap profits which will be relieved on cessation of the business in the final TR.

    That doesn't seem fair that a business should get taxed twice.
  • Gem7321 wrote: »
    Yes they would have to submit a TR for the period 1 Nov - 5 Apr 2010. Then in 2011 they would have to submit a TR for the period 1 Nov - 31 Oct 2010, so the profits between 1 Nov - 5 April 2010 are being taxed twice and are called overlap profits which will be relieved on cessation of the business in the final TR.

    So to get this right, you would submit the accounts from 01/11/09 - 30/04/10 for the tax year ending 05/04/10. Then for the tax year ending 05/04/11, you would submit the accounts for the period 01/11/09 - 31/10/10?

    This results in 6 months of the accounts being taxed twice. Rather than waiting for the business to cease, could the tax be claimed back before then?

    Also does the over paid tax sit on the balance sheet as an asset since it is owed to the business by HMRC?
  • AdamRAdamR Experienced Mentor Posts: 668Registered
    Overlap profits will only get relieved at cessation or when the year end is moved. However, if the year end is moved further away from 5th April - ie you move from 31st October to 30th June, you will create more overlap profits! The only year end that results in no overlaps is 5th April (and 31st March if you don't worry about the five days). Also bear in mind that you can't create overlap losses; these overlap calculations only apply to profits.

    By the way, you only have five months of profit taxed twice (01/11/08-5/04/09), not six. This is because the 31st of October is 5 months behind 5th April. A June year end would give you 9 months overlap profits and a May year end a full 11 months taxed twice.

    Hope this helps.
  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    Basis periods are unfair but they are the rules!

    I'm presuming you are doing first year accounts.

    The only other way overlap profits are relieved are by cessation of trade or change of accounting date as Adam has listed below.

    the tax doesn't sit on the balance sheet because it is not a business expense it is a personal expense.

    Are you submitting an actual tax return or are you just doing this for practice? I would be careful if it's a live one and it's not being checked by someone as it could cause problems and cost you, or the person you are doing it for!

    I always list the overlap profits on the white space of the tax return every year otherwise they tend to get lost and forgotten!
  • Gem7321Gem7321 Experienced Mentor DevonPosts: 1,438MAAT, AAT Licensed Accountant
    Don Juan wrote: »
    So to get this right, you would submit the accounts from 01/11/09 - 30/04/10 for the tax year ending 05/04/10. Then for the tax year ending 05/04/11, you would submit the accounts for the period 01/11/09 - 31/10/10?

    This results in 6 months of the accounts being taxed twice. Rather than waiting for the business to cease, could the tax be claimed back before then?

    Also does the over paid tax sit on the balance sheet as an asset since it is owed to the business by HMRC?

    To 5/4/10 not 30/4/10.

    I may be wrong, but I suppose you could carry back next years trading losses against it, assuming that the business makes a loss. Otherwise the overlap profits are deducted from the trading profits in the cessation period.

    As we're talking about a sole trader, the tax is payable as income tax by the owner, not by the business. Any income tax paid by the owner through the business bank account would be treated as the owners drawings.

    I hope this helps a bit, tax is taxing after all!
  • It might be easier if I come clean.

    I set up a bookkeeping business last year under sole trader. I started trading November 1st and I have a tax return to complete for myself for the year ending April 5th 2009. I have made no revenue to date and as I have expenses, to date I have made a loss.

    As I have no prior tax knowledge and I don’t want to pay an accountant to do my tax return, I need to complete it correctly. I have not produced the accounts yet as my year end isn’t till October 31st. I wasn’t expecting a tax return to be this complicated since plenty of sole traders do them themselves.
  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    Can you make life easier for yourself and have a 5th April year end?
  • So I can have my first year from 01/11/08 - 05/04/09 then start my second year from 06/04/09 - 05/04/10?
  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    Yes you can!
  • That makes like a hell of a lot easiler.

    I really need to start learning tax. I didn't think I needed it as I work full time in management accounts. Would you recommend the AAT units 18 & 19?
  • Apart from depreciation, what else would need to be added back as a non taxable expense?
  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    There's a whole load of them, business entertainment, possibly private use of assets depending on how you are going to deal with them.

    I would recommend the business tax unit, even if you go through the book but not take the exam it would help. If I remember rightly there's a list of typical things that need adding back in a tax comp and it will also show you the best layouts etc.
  • Ok, I've had a go at my tax comp.

    My net loss was £971 (which includes use of home at £20 per month which I think is reasonable).

    Then I have added back depreciation of £134.

    Due to the new change in capial expendature, I have claimed the full amount of £535 - £268 (50 % personal use) as per AIA.

    This calculates my net loss as £1,104 (give or take the rounding)

    Am I correct in assuming this?

    I believe I can claim this against my PAYE from employment.
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