Chapter 7 - Change of Accounting Date

Question 1

Intro

Answer 1

These special rules apply only to sole traders and partnerships, not companies.

Question 2

4 Stage Process - Stage One

Answer 2

Identify the year of change

Question 3

4 Stage Process - Stage Two

Answer 3

Calculate the taxable profits for all years either side of the year of change:

• Before the change - tax 12 months of profits up to the old accounts date
• After the change - tax 12 months of profits up to the new accounts date

Question 4

4 Stage Process - Stage Three

Answer 4

Identify the gap period - the period of profits which have not yet been taxed

Question 5

4 Stage Process - Stage Four

Answer 5

Tax the profits in the gap

• If the gap is more than 12 months, reduce the profits by using up apportioned overlap relief
• If the gap is less than 12 months, tax an appropriate amount of profits from the previous period to make the gap 12 months (this gives more overlap relief)

Question 6

Year of Change

Answer 6

Year of change is earlier of

1) the first tax year where accounts aren’t drawn to the old date; or
2) the first tax year where accounts are drawn to the new date

Question 7

Conditions for Valid Change of Accounting Date

Answer 7

1) Accounting period of change doesn’t exceed 18 months; and
2) taxpayer informs HMRC of the change by Jan 31 following the tax year of change; and
3) there has been no other change in the previous 5 tax years or the current change is for a bona fide commercial reason