Chapter 3 Long Periods of Account

Question 1

3.1 Introduction

Answer 1

An accounting period cannot exceed 12 months, under company law accounts can be prepared for periods as long as 18 months. Where a period of account 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 corporation tax returns

Answer 2

Identifying the APs – once we identify the accounting periods, we split the company’s income and gains between the two separate APs, as the accounts will have been prepared showing profits for the entire POA.
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 before deducting capital allowances are then time-apportioned between the two APs.
Capital allowances for the AP – separate computations for capital allowances are needed for each AP. The writing down allowance and the annual investment allowance limit are time apportioned for the second AP as it is a short AP, but first year allowances are never time apportioned.
Other income – non-trading profits and UK property business income are split on a time-apportionment basis due to the accounting basis of accruals. Chargeable gains are split between two separate APs based on the date of the disposal of the asset, this date is the date of a binding contract of sale. We deduct qualifying charitable donations which are split between the APs on the date of when the donation is paid.
Corporation tax liability – two separate computations of the corporation tax liability are prepared, one for each AP.