BIM81020 - Computation of liability: basis periods - where first accounting date just before end of tax year

S208-S210 Income (Trading and Other Income) Act 2005

Where a trader prepares accounts to a date shortly before the end of the tax year, the commencement rules normally create an overlap period from the accounting date to 5 April. However, in certain circumstances, special rules apply which modify the basis period for the year. The effect of these rules is that profits do not need to be apportioned and no overlap profits arise.

If the circumstances are relevant, the special rules apply automatically unless the trader elects otherwise. An election must be made on or before the first anniversary of the normal self assessment filing date for the tax year to which it relates.

Accounting date falls between 31 March and 4 April inclusive in year of commencement

Where the first accounting date is in the tax year in which the trade commenced, and that date falls between 31 March and 4 April inclusive, the basis period for the year ends on the accounting date rather than 5 April.

Example 1

The trade commences on 1 October 2012. Accounts are prepared to 31 March 2013 and 31 March 2014.

The basis period for 2012-13 ends on 31 March 2013. This is the accounting date in 2012-13.

The basis period for 2013-14 is 12 months to 31 March 2014 in the normal way.

The 5 days profits from 1 to 5 April 2013, which would count as profits for 2012-13 if there were no special rules, are deferred to the basis period for 2013-14.

First accounting date falls between 31 March and 4 April inclusive in Year 2 or Year 3

Where:

  • The trade commences before 1 April
  • There is no accounting date in the year of commencement
  • There is an accounting date in the second or third year of assessment which falls between 31 March and 4 April inclusive,

The basis period for the year of commencement ends on the date in Year 1 which corresponds to the first accounting date in Year 2 or Year 3.

Where the first accounting date ends in Year 3, the basis period for Year 2 begins immediately after the basis period for Year 1 as determined above, and ends on the date which corresponds to the first accounting date in Year 2.

Example 2

The trade commences on 1 March 2013 and the first accounts are prepared to 31 March 2014.

The basis period for 2012-2013 starts on 1 March 2013 and ends on 31 March 2013. This is the date that corresponds to the first accounting date in Year 2 (2013-2014).

The basis period for 2013-2014 is 12 months from 1 April 2013 to 31 March 2014.

The 5 days profits from 1-5 April 2013, which would count as profits for 2012-2013, if there were no special rules, are deferred to the basis period for 2013-2014.

Trade commences between 1 and 5 April with no accounting date in the year

Where the trade commences between 1 and 5 April and there is no accounting date in the year, the profits and losses of the year of commencement are treated as NIL. Any profits or losses which would otherwise have arisen in the year of commencement are treated as arising in the basis period for the following year, if they do not already do so.

Example 3

The trade commences on 1 April 2013 and the first accounts are prepared to 31 March 2014.

The profits and losses for 2012-2013 are treated as Nil.

The basis period for 2013-2014 is 12 months to 31 March 2014, in the normal way.

The 5 days profits from 1 to 5 April 2013, which would count as profits for 2013-2013 if there were no special rules, are deferred to the basis period for 2013-2014.