basis periods Flashcards
What is the actual basis and when do you apply it?
The actual basis is applied in the first year of trade. Applying the actual basis means that you will tax everything from the starting trade date to the end of the tax year.
What is the current year basis and when do you apply it?
This means you take 12 months prior of profits from the period of account ending in the tax year. This is the general rule for taxing profits.
What is the basis period in a trader’s second tax year, if there is a period of account ending in the second tax year, which is less than 12 months?
Taxable income for the second tax year should be considered as the profits from the first 12 months of trade.
Overlap profits would be considered as those also taxed in the first year of trade
What is the basis period in a trader’s second tax year, if there is a period of account ending in the second tax year, which is more than 12 months?
In this case, you would take profits from 12 months prior to the end of the period of account. (CYB)
What is the basis period in a trader’s second tax year, if there is a period of account ending in the second tax year, which is 12 months long
In this case, you would apply the current year basis, meaning you would take profits from 12 months prior to the period of account.
what are overlap profits? Can you claim them?
Overlap rules relate to months that have been taxed twice due to the opening year rules.
You can not reclaim relief from overlap profits until the cessation of trade, or trader ceases to trade.
What is the tax period when a business ceases trading in their first tax year?
Taxable profits should be considered as the tax period in which the business traded.
What is the tax period when a business ceases trading in its second tax year?
Taxable profits should be considered as the taxable profits from the start of the tax year (6 April) until the date you cease to trade
What is the tax period when a business ceases trading in its third tax year?
Tax everything not already taxed (even if greater than 12 month time period).
When a trade changes their accounting date. What should be taken as taxable profits when the accounting date change results in a short short PoA (<12 months) in the tax year of change?
Taxable profits should be the profits arising in the 12 months prior to the new accounting date.
When a trade changes their accounting date. What should be taken as taxable profits when the accounting date change results in a long short PoA (>12 months) in the tax year of change? (e.g. 30 september 2020 changed to 31 December 2021)
*mention overlaps
Taxable profits should be considered as all months following the end date of the previous period of account to the new period of account (e.g. all 15 months).
Overlap profits previously incurred can be used to reduce the taxable months to 12.
When a trade changes its accounting date. What should be taken as taxable profits when the accounting date change results in no PoA ending in the tax year of change? (e.g. 31 March 2021 changed to 30 June 2022).
Create a notional period of account ending 12 months before the new date, and take the taxable profits as the 12 months profit up to this date.
When a trade changes its accounting date. What should be taken as taxable profits when the accounting date change results in two PoA ending in the tax year of change? (e.g. 30 June 21 changed to 30 September 2021).
Consider the taxable profits up to the old PoA, in addition. to the profits up to the new PoA. This results in taxable months exceeding 12 however overlap periods can be used to reduce the taxable months to 12.
