BIM71001 - Computation of liability: introduction to basis periods

An individual who carries on a trade, profession or vocation is taxed on the profits arising in the ‘basis period’ for the tax year.

The ‘basis period’ rules changed with the introduction of Self Assessment for income tax.

‘‘Current year’ basis of assessment - 1997-1998 and later years

The ‘current year’ basis period rules apply:

• For 1997-1998 and later years if the trade, profession or vocation commenced before 6 April 1994.
• For 1994-1995 and later years if the trade, profession or vocation commenced on or after 6 April 1994.

Guidance on the ‘current year’ rules is at BIM71005 onwards. The general rule is that the profits for a tax year are those arising in the trader’s 12 month accounting period which ends in the tax year.

‘Previous year’ basis of assessment - 1996-1997 and earlier years

For a trade or profession which commenced before 6 April 1994:

• The ‘previous year’ basis period rules apply for 1995-1996 and earlier years
• There are transitional rules for 1996-1997
• There are special cessation rules where the business ceased in 1996-1997, 1997-1998 or 1998-1999.

Guidance on the ‘previous year’ rules is at BIM71100 onwards. The general rule is that the profits for a tax year are those arising in the trader’s 12 month accounting period which ended in the previous tax year.