Chapter 3 Long periods of account

Question 1

3.1 Introduction

Answer 1

An AP for corporation tax cannot exceed 12 months, but accounts can be prepared for 18 months. Where a POA exceeds 12 months, it must be split into two separate APs for tax purposes. The first will be 12 months and the second will be the balance of the period.

Question 2

3.2 Preparing the CT returns

Answer 2

Identifying the APs – once we have identified the APs, we split the income and gains into two APs.
Trading profits for the POA – trading profits are adjusted for the entire POA by adding back disallowed items and deducting income not taxed as trading income. The resulting tax adjusted trading profits are then deducted by capital allowances which are time-apportioned between the two APs.
Capital allowances for the AP – separate computations for capital allowances are required for each AP. The writing down allowance and the AIA limit are time-apportioned for the second AP as it is a short AP.
Other income – non trading loan relationships and UK property business income are split on a time apportionment basis as the accruals basis of accounting applies to these sources of income.
Chargeable gains are split between the separate APs based on the date of the disposal of the asset. This is the date of the binding contract of sale, for property this is the date of the exchange of contracts.
Qualifying charitable donations are split based on the date the donation was actually paid.