Basis of Assessment Flashcards
What is a current year basis?
The profits taxed in a tax year are those of the twelve month accounting period ending in that tax year
What are the special opening year rules that apply when a sole trader begins to trade?
- The first tax year is the year in which trade starts
- The basis of assessment in the first tax year is the actual basis
What is the actual basis?
Under the actual basis the tax adjusted profits are apportioned from the date the business starts trading to the end of the tax year
What are overlap profits?
Overlap profits arise when the same profits are taxed in more than one tax year. The overlap profits are carried forward and deducted from the final assessment when the business ceases to trade
What do you do when the POA ending in the second tax year is exactly 12 months long?
If the period of account ending in the second tax year is exactly 12 months long then the sole trader will start to use the current year basis.
This may result in some of the profits have been taxed twice.
What do you do if the POA ending in the second tax year is less than 12 months?
If the period of account ending in the second tax year is less than 12 months long then the sole trader must tax the first 12 months of trade
What do you do if the POA ending in the second tax year is more than 12 months?
If the period of account ending in the second tax year is more than 12 months long then the sole trader must tax the last 12 months of the long period of account ending in the second tax year
What if there is no period of account ending in the second tax year?
If no period of account ends in the second tax year then then sole trader must:
- In the second tax year continue to use the actual basis
- In the third year apply the rules for a period of account longer than 12 months ending in the tax year
In the tax year in which trade cease, the sole trader must what?
- Tax all profits not yet taxed in previous years
- Deduct from that toal any overlap profits from commencement
