BIM71025 - Computation of liability: basis periods - year of cessation

The basis period for the tax year in which a person permanently ceases to carry on a trade, profession or vocation

1. begins immediately after the end of the basis period for the previous tax year, and
   
   
2. ends on the date of cessation.
   
   

If the business commences and ceases in the same tax year the basis period for that year begins and ends on those dates.

Example 1

A new trade commences on 1 July 2005. Accounts are prepared for a 6 month period to 31 December 2005, and to 31 December in 2006 and 2007. The trade ceases on 30 April 2008 and a 4 month account is prepared to this date.

The basis periods are:

Change of accounting date in year before cessation

It is quite common for the final accounting period of a business to be for a period other than 12 months (for example, the normal 12 month accounting period plus a short period to the date on which the business ceased). In such cases the accounts will have been made up to a date which is not the annual accounting date, but without any intention that this ‘new date’ should be used as a new accounting date.

These circumstances do not have to be dealt with as a change of accounting date if the taxpayer chooses not to make a notification of a change of accounting date on their SA return, see BIM71045.

Example 2

A new trade starts on 1 July 2008 and accounts are prepared to 31 December 2008 and 31 December 2009. The business ceases on 30 April 2011 and a 16 month account is prepared to this date.

The basis periods are:

As there was no intention to change the accounting date in 2010-2011, the trader makes no notification in their 2010-2011 SA return, see BIM71045. The basis period for 2010-2011 remains the 12 months to the ‘old’ accounting date of 31 December 2010.