Apply the basis of assessment for trading income.
Compute ‘overlap profits’ and show how relief is obtained.
Calculate the effect of a change of accounting date.
Show how adjustments to an income statement can produce a loss.
Identify the forms of relief for trading losses and compu...
OUTCOMES:
Apply the basis of assessment for trading income
Compute ‘overlap profits’ and show how relief is obtained
Calculate the effect on profits of a change of accounting date
Show how adjustments to a profit and loss account can produce a loss
Identify the forms of relief for trading losses and compute assessments after loss relief
Advise a taxpayer on the optimum use of losses
Advise on the Income Tax consequences of starting up a business
CURRENT YEAR BASIS OF ASSESSMENT:
Tax year is 6th April to 5th April
Unlikely to coincide with business accounts
Current year basis (cyb) matches adjusted profits to tax years
Basis period for a tax year is the accounting year ending in that tax year
OPENING YEAR RULES:
Tax year Basis period
1 Date of commencement to the following 5 April
(the ‘actual’ basis) (31 March for convenience)
2 (a) 12 months to the accounting date in the
second tax year (if possible)
Or
(b) The first 12 months of trading (if accounting
date in the second tax year is less than 12 months
after commencement)
3 Current year basis
4 etc. Current year basis
OVERLAP PROFITS:
Because basis periods can overlap, profits can be taxed more than once
Deducted from the final year’s profits
If overlap profits > final year profits = loss (see later)
Overlap profits created can also be used on change of accounting date
LECTURE ACTIVITY:
1. A business starts on 1/1/22, and draws up
accounts to 31/12/22. What is the basis of assessment for 2021/22 and 2022/23?
2021/22 : 1/1/22 to 31/3/22
, 2022/23 : 1/1/22 to 31/12/22
2. Assuming that the business makes profits of £12,000 in the first 12 months, quantify the
overlap profits.
2021/22 : 3/12 x £12,000 = £3,000
2022/23 = £12,000
Overlap profits = £3,000
3. How will overlap profits be relieved?
By deduction from final year’s assessment, or on a change of accounting date
YEARS OF ASSESSMENT:
5 April 2023
5 April 2022
5 April
2021 Current year
Actual
3000 12000
31 Dec 2022 31 Dec 2023
1 Jan 2022
Profits 12000
Start business
EXAMPLE:
A business commences on 1st January 2022, and prepares accounts to 30th June 2022 (profit £8,000),
and annually thereafter. It makes £24,000 for the year to 30 June 2023.
2021/22: 1.1.22-31.3.22:
3/6 x 8,000 = £4,000
2022/23 1.1.22 - 31.12.22:
£8,000 + £12,000 (6/12 x 24,000)
£20,000
2023/24: y/e 30.6.23: £24,000
Overlap profit = £4,000 +12,000 = £16,000
YEARS OF ASSESSMENT:
5 April 2022
5 April 2021 5 April 2013
actual Current year:
4000 8000+6/12x24000
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller anum406. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £9.49. You're not tied to anything after your purchase.
