BIM72270 - Partnerships: Computation & assessment: Partner’s Deemed Trade: Change of Partnership Accounting Date

Individual partners are bound by the accounting dates and accounting periods adopted by the partnership. In other words the basis periods for each ‘deemed trade’ are always in alignment with the accounting periods used for the actual partnership business (ICTA88/S111 (4)(c)) unless the special commencement or cessation rules apply to the individual partner’s deemed trade.

Where a partnership changes its accounting date special rules maintain this alignment. The underlying principle is that you apply the change of basis period rules (in ICTA88/S62 and ICTA88/S62 (A)) to the partnership as if it were an individual (ICTA88/S111 (4)(d) and ICTA88/S111 (5)).

If the partnership satisfies the relevant conditions then the new accounting date is effective for tax purposes. Each partner uses the ‘new date’ to determine their basis period for the year of change. For established partners this means that ICTA88/S62 (2) applies. But newly joined partners use the ‘new date’ to determine a basis period given by ICTA88/S60 (3)(a) or ICTA88/S61.

If the partnership does not satisfy the relevant conditions then the new accounting date is not effective for tax purposes. Each partner has to use the ‘old date’ to determine their basis period for the year of change. For established partners this means that you apply ICTA88/S60 (3)(b). Newly joined partners use the ‘old date’ to determine a basis period given by ICTA88/S60 (3)(a) or ICTA88/S61.

The partnership is responsible for ensuring that the relevant conditions for a change of basis period are met.

Thus the rules at

• ICTA88/S62 (1)(b) - automatic change in first three years of business,
• ICTA88/S62A (2) - no accounting date to exceed 18 months,
• ICTA88/S62A (4) - no change to which Section 62(2) applied in previous five years, and
• ICTA88\S62A (5) - latest change made for genuine commercial reasons.

automatically apply to a partnership when applying ICTA88/S62 and ICTA88/S62A as if the partnership were an individual.

ICTA88/S111 (6) provides that the notification of a change of accounting date and for any appeal against a notice issued by an officer of the Board must be made at partnership level. The partners may nominate any partner to give such a notice, or make such an appeal, on behalf of the partnership.

Example 1 (New date effective for tax purposes)

John Smith and Stephen West have been trading as fishmongers for some years. Their accounting date is 5 April. On 1/10/2011 Thomas Pym joins the firm. The circumstances are such that the continuation basis applies (ICTA88/S113 (2)). It is decided that from the following year the accounting date should change to 30 April. Accounts are prepared as follows

The partnership must satisfy the relevant conditions as if it were an individual (ICTA88/S111 (4)(d)). The first accounting period to the new date does not exceed 18 months (ICTA88/S62 A(2)) and there have been no changes of accounting date in the past 5 years (ICTA88/S62 (4)). Providing the nominated partner gives the required notice (ICTA88/S111 (6)) the relevant conditions are satisfied.

If so the new date is effective for tax purposes and the partners’ basis periods will be as follows

(New date not effective for tax purposes)

The facts are the same as in example 1 but if the relevant conditions are not satisfied - for example, because the partnership failed to give the required notice - then all three partners have to determine their basis periods by reference to the old date (ICTA88/S111 (4)(c) and (5)).