Seminar 6 Flashcards
income tax runs from what date to what date?
6th april - 5th april
do most businesses run their accounting period within the income tax year?
no, an accounting period must be determined as the ‘basis period’ for each tax year
generally, on what basis are self-employed people tax?
current year basis
runs up until their specific year end
how are profits taxed in the first tax year for a self-employed person?
actual basis
this means their commencement date up until the following 5th april
then it’s time apportioned
how are the second tax year profits calculated?
if the second tax year is less than 12 months > it’s the first 12 months of trading
if the second tax year is 12 months > that period is the basis period
if the second tax year is more than 12 months > the last 12 months leading up to the year end is the basis period
if there’s no period of account ending in that tax year, use actual basis (6th-5th april)
if someone chooses any date other than 31st march as their year end…
they will have overlap profits
how is the third tax year profits calculated?
usually it’s the current year basis (normal basis period)
if there’s no period of account ending in the third tax year, it’s the 12 months leading up to the period for the tax year
when do overlap profits arise?
when a trader doesn’t choose 31 march as their year end date
what is the worst case scenario for overlap profits?
having 30th april as your tax year end (11 months overlap)
what is overlap relief?
taxable relief that is deducted from trading profits in the final tax year
if the accounting period end date was 30th april, how much overlap profit?
11 months
if the accounting period end date was 30th june, how much overlap profit?
9 months
if the accounting period end date was 30th september, how much overlap profit?
6 months
if the accounting period end date was 28th february, how much overlap profit?
1 month
if the accounting period end date was 31st January, how much overlap profit?
2 months
cessation of trade = ?
occurs when the owner of a business retires or sells the business or dies
what is the basis period in the final year of trade?
the end of the previous tax period to the cessation date
what happens to any overlap profits brought forward?
they’re deducted from the final tax year’s profits
overlap relief = ?
you can claim back overlap profit from the beginning of your business in your final year of trading
cons of overlap relief?
it wont be received until the business’s cessation and it isn’t adjusted for inflation over time
when is tax due?
in the period in which the year end is
e.g., dec 2021 > 21/22 tax year (as it’s between apr 21 and apr 22)
