BIM81040 - Computation of liability: basis periods - change of accounting date in the opening years of trade
S215 Income (Trading and Other Income) Act 2005
There are special rules for a change of accounting date which takes place in the opening years of trade.
The conditions which have to be met for changes of accounting date in year 4 and later years to be effective (see BIM81045) do not apply to changes which occur in years 1, 2 or 3. Where a change of accounting date occurs in those early years, basis periods are determined as follows:
Year 1
The normal basis period rules for Year 1 apply, see BIM81015. The basis period for Year 1 is always the period from the date that the trade commenced to 5 April at the end of Year 1.
Year 2
The normal basis period rules for Year 2 apply, see BIM81015. The basis period for Year 2 is:
- 12 months to the accounting date in Year 2 - if that date is 12 months or more after the date of commencement;
- 12 months from the date trading commenced - if the accounting date in Year 2 is less than 12 months after the date of commencement.
Where no accounts end in Year 2, and the accounting dates in Years 1 and 3 are not the same, there is a change of accounting date in Year 2. This is because Year 2 is the first tax year in which accounts are not drawn up to the old accounting date, see BIM81035. The accounting date for Year 2 becomes the corresponding accounting date in Year 3, and the basis period for Year 2 will depend on whether this date is more than 12 months after the date of commencement.
Year 3
If the new accounting date in Year 3 is 12 months or less after the end of the basis period for Year 2, the basis period for Year 3 is 12 months to the accounting date in Year 3, see BIM81015.
If the new accounting date in Year 3 is more than 12 months after the end of the basis period for Year 2, the basis period for Year 3:
- Begins immediately after the basis period for Year 2; and
- Ends with the new accounting date in Year 3.
Example 1 - change of accounting date in Year 2 - new date more than 12 months after commencement
A new trade starts on 1 July 2012 and prepares its first accounts to 31 December 2012. The second accounts involve a change of accounting date to 30 September 2013 and accounts are prepared to 30 September each year thereafter.
The basis periods are:
| Year | - | - |
|---|---|---|
| 2012-2013 | Year 1 | 9 months from 1 July 2012 to 5 April 2013 |
| 2013-2014 | Year 2 | 12 months to 30 September 2013 |
| 2014-2015 | Year 3 | 12 months to 30 September 2014 |
The basis period for 2013-2014 is 12 months to the accounting date in Year 2 (30 September 2013) as that date is 12 months or more after the date of commencement.
The 6 month period from 1 October 2012 to 5 April 2013 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
Example 2 - change of accounting date in Year 2 - new date less than 12 months after commencement
A new trade starts on 1 July 2012 and prepares its first accounts to 31 December 2012. The second accounts involve a change of accounting date to 30 April 2013 and accounts are prepared to 30 April thereafter.
The basis periods are:
| Year | - | - |
|---|---|---|
| 2012-2013 | Year 1 | 9 months from 1 July 2012 to 5 April 2013 |
| 2013-2014 | Year 2 | 12 months to 30 June 2013 |
| 2014-2015 | Year 3 | 12 months to 30 April 2014 |
| 2015-2016 | Year 4 | 12 months to 30 April 2015 |
The basis period for 2013-2014 is the 12 months from commencement. Although there has been a change of accounting date in Year 2, the new date (30 April 2013) falls less than 12 months after trading commenced on 1 July 2012.
The 9 month period from 1 July 2012 to 5 April 2013 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
The basis period for 2014-2015 (Year 3) is 12 months to the accounting date in 2014-2015 as this is 12 months or less after the end of the basis period for Year 2.
The 2 month period from 1 May 2013 to 30 June 2013 is also an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
Example 3 - change of accounting date in Year 2 - accounts not prepared to a date in Year 2
A new trade starts on 1 July 2012 and prepares its first accounts to 31 December 2012. The second accounts involve a change of accounting date to 30 April 2014 and accounts are prepared to 30 April thereafter.
The basis periods are:
| Year | - | - |
|---|---|---|
| 2012-2013 | Year 1 | 9 months from 1 July 2012 to 5 April 2013 |
| 2013-2014 | Year 2 | 12 months to 30 June 2013 |
| 2014-2015 | Year 3 | 12 months to 30 April 2014 |
| 2015-2016 | Year 4 | 12 months to 30 April 2015 |
There is a change of accounting date in 2013-2014, the first year to which accounts are not prepared to the old accounting date of 31 December. As no accounts are drawn up to a date in 2013-2014, the accounting date for that year is 30 April 2013, the date in 2013-2014 which corresponds to the new date (30 April) to which accounts will be drawn up in later years.
The basis period for 2013-2014 is the 12 months from commencement. Although there has been a change of accounting date in Year 2 the new date (30 April 2013) falls less than 12 months after trading commenced on 1 July 2012.
The 9 month period from 1 July 2012 to 5 April 2013 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
The basis period for 2014-2015 (Year 3) is 12 months to the accounting date in 2014-2015 as this is 12 months or less after the end of the basis period for Year 2.
The 2 month period from 1 May 2013 to 30 June 2013 is also an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
Example 4 - change of accounting date in Year 3 - new date less than 12 months after Year 2 basis period
A new trade starts on 1 October 2014 and prepares its first accounts to 30 September 2015. The second accounts are prepared for 9 months from 1 October 2015 to 30 June 2016
The basis periods are:
| Year | - | - |
|---|---|---|
| 2014-2015 | Year 1 | 6 months from 1 October 2014 to 5 April 2015 |
| 2015-2016 | Year 2 | 12 months to 30 September 2015 |
| 2016-2017 | Year 3 | 12 months to 30 June 2016 |
Because the accounts to the new accounting date in Year 3 are for less than 12 months, the basis period for Year 3 is 12 months to the new accounting date in Year 3 (30 June 2016).
The 6 month period from 1 October 2014 to 5 April 2015 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
The 3 month period from 1 July 2015 to 30 September 2015 is also an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.
Example 5 - change of accounting date in Year 3 - new date 12 months or more after Year 2 basis period
A new trade starts on 1 July 2012 and prepares its first accounts for 11 months to 31 May 2013. The second accounts are prepared for 18 months from 1 June 2013 to 30 November 2014.
The basis periods are:
| Year | - | - |
|---|---|---|
| 2012-2013 | Year 1 | 9 months from 1 July 2012 to 5 April 2013 |
| 2013-2014 | Year 2 | 12 months to 30 June 2013 |
| 2014-2015 | Year 3 | 17 months from 1 July 2013 to 30 November 2014 |
| 2015-2016 | Year 4 | 12 months to 30 November 2015 |
Because the accounts to the new accounting date in Year 3 are for more than 12 months, the basis period for Year 3 begins immediately after the basis period for Year 2 and ends with the new accounting date in Year 3.
The 9 months period from 1 July 2012 to 5 April 2013 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year.
As the basis period for 2014-2015 is longer than 12 months (by 5 months), overlap relief for 5 months worth of the 9 months overlap profits can be given in 2014-2015, see BIM81090.