For a trade, profession or vocation which commenced before 6 April 1994:
This paragraph gives an outline of the ‘previous year’ basis period rules which apply for 1995- 1996 and earlier years where accounts were regularly made up to the same date each year.
The general rule under the ‘previous year’ basis of
assessment is that for any tax year income tax is charged on the
profits of the previous tax year. Where accounts are prepared for a
12 month period to a date in the previous tax year the assessment
for the current tax year is based on the profits shown by those
Example – a trader has been in business for many years and makes up their accounts each year to 31 December. Their basis period for 1992-1993 is the 12 months to 31 December 1991.
Different rules apply to the early years after the trade commenced, and to the year of cessation and the years immediately before it.
The following table summarises the basis period rules for each year under the ‘previous year’ basis:
|Date trade commenced to 5 April in Year 1|
|2||12 months from date trade commenced (unless claim made under old s62(2) ICTA 1988*)|
|3||(a) Where future accounting date in Year 2 is more than 12 months after date trade commenced – 12 months to that date (unless claim made under old s62(2) ICTA 1988*)|
|(b) Where future accounting date in Year 2 is less than 12 months after date trade commenced – 12 months from date trade commenced (unless claim made under old s62(2) ICTA 1988*)|
|4 onwards||12 months to accounting date ending in previous tax year (see General Rule)|
|Antepenultimate and penultimate years||Where aggregate profits of the antepenultimate and penultimate years exceed the amounts assessed for those two years under the General Rule, the assessments are adjusted to the actual profits for those years.|
|Year trade ceased||6 April in final year to date of cessation.|
* Under old Section 62(2) ICTA 1988 a taxpayer could make a claim for the assessments for both Years 2 and 3 to be based on the actual profits of those years. The claim must be made within 6 years of the end of Year 3.
Please contact CT&VAT Technical for guidance on how the ‘previous year’ rules apply where: