Trading Profits - Basis of assessment

Question 1

What are the opening year rules?

Answer 1

Yr1 - Tax from start of trade to 5th April

Yr2 - Is there an AP ending in the tax year

If yes:
<12 months - Tax 1st 12 months
=12 months - Tax the AP
>12months - Tax first 12 months

If no:
Tax 6th April to 5th April

Yr3 - Tax CYB

Question 2

What are overlap profits?

Answer 2

Trade profits taxed more than once

Question 3

How is the final tax year treated?

Answer 3

Tax any profits not taxed
(Overlap profits)
=Trade income for the final tax year

Question 4

What is a partnership?

Answer 4

A collection of two or more individuals carrying business with a view to profit

Question 5

How are partner’s trading profits calculated?

Answer 5

1. Adjust the partnership profit (as for a sole trader)
2. Calculate capital allowances (as for a sole trader)
3. Deduct 2 from 1
4. Allocate a share of the profit to each individual partner
5. Treat each partner as a separate sole trader

Question 6

How are partnership profits allocated?

Answer 6

Done according to the profit sharing agreement for the period of account.

Partners may be entitled to a salary , allocate before remaining amount of taxable trading profits in line with PSR

Question 7

When is relief for overlap profits provided?

Answer 7

Final tax year

Deduct from taxable trading profits

Question 8

What is the final tax year for a business?

Answer 8

Year in which business ceases to trade

Tax from end of basis period for the penultimate tax year to date of cessation