Where a trade commences before 6 April 1994 there are
transitional basis period rules for the tax year 1996-1997.
This paragraph explains:
The general rule is that the transitional basis period for 1996-1997 is the aggregate of two separate periods:
The profit assessed for 1996-1997 is the ‘appropriate percentage’ of the profits of this transitional basis period. This percentage is derived from the fraction 365/n where ‘n’ is the total number of days in the transitional basis period.
Accounts made up to 30 June for many years. Basis periods are:
1995-1996 (PY) – 12 months to 30 June 1994
1996-1997 (Transitional year) – 24 months to 30 June
1996 (12 months to 30 June 1995 + 12 months to 30 June 1996)
– profits assessed are 365/731 or 12/24 (50%) of the profits
for this basis period
1997-1998 (CY) – 12 months to 30 June 1997.
Accounts made up to 30 April for many years. The accounting date
is changed to 5 April during the 1996-1997 transitional year. Basis
periods are:
1995-1996 (PY) – 12 months to 30 April 1994
1996-1997 (Transitional year) – 35 months to 5 April
1997 (23 months to 5 April 1996 + 12 months to 5 April 1997)
– profits assessed are 12/35 (34.3%) of the profits for this
basis period
1997-1998 (CY) – 12 months to 5 April 1998.
Losses are aggregated with profits in computing the profits of
either the ‘notional CY basis period’ or the
‘relevant period’. But an overall loss in one of these
periods is not aggregated with a profit in the other.
If either the ‘notional CY basis period’ or the
‘relevant period’ shows an overall loss that loss is
treated as ‘nil’ when aggregating the two periods to
determine the profit of the transitional basis period for
1996-1997. The relevant legislation in FA94/SCH20 refers to
aggregating the profits of each period and makes no reference to
losses.
Treating losses as ‘nil’ leaves the loss
incurred available for use as loss relief.
The business profits / (losses) are:
| 12 months to 30 April 1995 | £15,000 |
| 12 months to 30 April 1996 | £17,500 |
| 11 months to 5 April 1997 | £17,000 |
1996-1997 basis period is 35 months to 5 April 1997 (23 months
‘relevant period’ to 5 April 1996 + 12 months
‘notional CY basis period’ to 5 April 1997).
Aggregate profits for these periods are £49,500.
Profits assessable for 1996-1997 are £49,500 x 34.3% =
£16,971.
The business profits / (losses) are:
| 12 months to 30 April 1995 | £14,000 |
| 12 months to 30 April 1996 | (£6,000) |
| 11 months to 5 April 1997 | £7,000 |
1996-1997 basis period is 35 months to 5 April 1997 (23 months
‘relevant period’ to 5 April 1996 + 12 months
‘notional CY basis period’ to 5 April 1997).
The profits for the ‘relevant period’ are
£8,500 (£14,000 - (11/12 x £6,000))
The profits for the ‘notional CY basis period’
are £6,500 (£7,000 – (1/12 x £6,000)
Aggregate profits for these periods are £15,000.
Profits assessable for 1996-1997 are £15,000 x 34.3% =
£5,145
The business profits / (losses) are:
| 12 months to 30 April 1995 | £5,000 |
| 12 months to 30 April 1996 | (£8,000) |
| 11 months to 5 April 1997 | £6,000 |
1996-1997 basis period is 35 months to 5 April 1997 (23 months
‘relevant period’ to 5 April 1996 + 12 months
‘notional CY basis period’ to 5 April 1997).
The overall loss for the ‘relevant period’ is
£2,333 (£5,000 - (11/12 x £8,000))
The profits for the ‘notional CY basis period’
are £5,333 (£6,000 – (1/12 x £8,000)
Aggregate profits for these periods are ‘Nil’ +
£5,333 = £5,333
Profits assessable for 1996-1997 are £5,333 x 34.3% =
£1,839
The losses not used in aggregation (£2,333) are
available for loss relief purposes in the normal way.
Where there is a change of accounting date between 1995-1996 and 1997-1998 and no accounting date falls in 1996-1997, the transitional basis period is the aggregate of:
Trading accounts have been made up to 5 April for many years.
The trader decides to change the accounting date to 30 April during
the transition. Accounts are prepared as follows:
12 months to 5 April 1995
12 months to 5 April 1996
13 months to 30 April 1997
Basis periods are:
1995-1996 (PY) – 12 months to 5 April 1995
1996-1997 (transitional year) – 24 months to 5 April
1997 (12 months ‘relevant period’ to 5 April 1996 + 12
months ‘notional CY basis period’ to 5 April 1997)
– profits assessed are 50% (12/24) of the profits for this
basis period
1997-1998 (CY) – 12 months to 30 April 1997 (treated
as a qualifying change of accounting date).
Where the basis period for 1995-1996 is 6 April 1995 to 5 April
1996 there is no ‘relevant period’ because there is no
gap (and often an overlap) between the basis period for 1995- 1996
and any ‘notional CY basis period’ for 1996-1997.
In such cases the basis period for 1996-1997 is the tax year
itself, 6 April 1996 to 5 April 1997. The normal CY basis period
rules apply for the following year, 1997-1998.
A trade commenced on 1 January 1994. Accounts are made up to 31
December each year. The first tax year is 1993-1994. An election is
made under old Section 62(2) ICTA 1988 for the actual profits of
years 2 and 3 (1994-1995 and 1995-1996) to be assessed.
Basis periods are:
| 1993-1994 (PY rules) | 1 January 1994 to 5 April 1994 |
| 1994-1995 (PY rules) | 6 April 1994 to 5 April 1995 |
| 1995-1996 (PY rules) | 6 April 1995 to 5 April 1996 |
| 1996-1997 (transitional year) | 6 April 1996 to 5 April 1997 |
| 1997-1998 (CY rules) | 1 January 1997 to 31 December 1997 |
Transitional relief is given to continuing businesses to adjust
for the fact that some profits would have escaped tax under the
‘previous year’ basis period rules because they fell
within a gap between the basis periods for years leading up to
cessation of trading.
For a continuing business some profits do escape tax under
the averaging process in the transitional ‘current
year’ rules for 1996-1997. A further adjustment is provided
in the form of ‘transitional relief’.
The amount of transitional relief given in any case equals
the profit (usually before capital allowances are deducted) between
the end of the basis period for 1996-1997 and 6 April 1997. The
exception is partners in a mixed partnership of individuals and
companies, where the profit on which transitional relief is due is
after adjustment for capital allowances.
Transitional relief is carried forward as if it were overlap
relief and is relievable as overlap relief in the normal way, see
BIM71075.
Where there is an overlap between the basis period for
1996-1997 and the basis period for 1997-1998, overlap relief is due
in the normal way.
A sole trader’s basis periods are:
| 1996-1997 | 24 months to 31 December 1996 |
| 1997-1998 | 12 months to 31 December 1997 |
Transitional relief arises for the period 1 January 1997 to 5
April 1997 (95 days).
If the trader’s profit for 12 months to 31 December
1997 is £15,000 less capital allowances £3,000, the
profit assessable for 1997-1998 is £12,000.
The profit of the transitional relief period is 95/365 x
£15,000 = £3,904 (over 95 days).
