CURRENT YEAR BASIS

1
CURRENT YEAR BASIS

• For any particular tax year a self-employed
  trader pays tax on his adjusted profits for the
  basis period for that year.
• For an established business the basis period for
  a given tax year is the accounting year ending in
  that tax year (the CYB), but there are special
  rules for -
• the opening years of a business
• the last year of a business, and
• whenever a business changes its accounting date

2
CYB Examples

• For tax year 2006/07, the basis period for a
• business with -
• a March accounting date isthe year ended 31
  March 2007
• a December accounting datethe year ended 31
  December 2006
• a September accounting datethe year ended 30
  September 2006
• an April accounting datethe year ended 30 April
  2006

3
Commencement of Trade

• for the first tax year, the basis period is
• the actual basis, i.e. from the date of
  commencement of trade to 5 April following
• for the second tax year, the basis period may be
• the CYB, or
• the first 12 months trading, or
• the actual basis
• for the third tax year, the basis period is -
• the CYB (whether or not this applied in the
  second year)

4
The SECOND year of a new business

• If there is an accounting date in the second tax
  year which falls at least 12 months after the
  commencement of trade
• the basis period is the CYB
• if there is an accounting date in the second tax
  year but it does not fall at least 12 months
  after the commencement of trade
• the basis period is the first 12 months
• if there is no accounting date in the second tax
  year
• the basis period is the actual basis

5
Current Year Basis2nd Year of a New Business
An accounting date falls in the second tax year
and it falls 12 months after the commencement of
business CYB applies in the second tax year
6
Current Year Basis2nd Year of a New Business
An accounting date falls in the second tax year
but it falls less than 12 months after the
commencement of business the basis period for
the second tax year is The first 12 months trading
7
Current Year Basis2nd Year of a New Business
There is no accounting date in the second tax
year the actual basis applies as it did in the
first tax year The CYB is established in the
third year 12 months ended 30 June
8
The LAST year of a business

• Whenever a trade ceases there is neither a gap
  nor an overlap between the basis periods for
  successive tax years.
• The basis period for the last tax year runs from
  the end of the basis period for the penultimate
  tax year (CYB) up to the date that the trade
  ceases.
• Overlap profits which arose on commencement
  (and/or on a change of accounting date) are
  deducted from the DI assessment for the final year

9
Cessation of Trade

• Example
• A business with a June accounting date ceases to
  trade on 31 December 2009.
• 2008/09 (the penultimate year)
• basis period is the y/e 30 June 2008
• 2009/10 (the year in which trade ceases)
• basis period is the y/e 30 June 2009
• 6 mths/e 31 December 2009
• overlap profits deducted from DI assessment for
• 2009/10

10
Overlap profits

• Actual basis
• 1st 12 months
• CYB

11
Rising profits under CYB
12
Change of Accounting Date (COAD)

• A business cannot change its accounting date more
  frequently than once every five years, except for
  -
• genuine commercial reasons (not tax avoidance)
• The first new accounting period must not be
  longer than 18 months
• The first tax year affected by the new date is
• the year in which accounts are not made up to the
  old date, or
• the year in which no accounting date falls (the
  new date for tax purposes is 12 months earlier
  than the actual new date)

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COAD (continued)

• The relevant period runs from the end of the
  basis period for the previous year to the new
  date
• If the relevant period is shorter than 12 months,
  the basis period is the 12 months ending on the
  new date
• overlap profits arise
• If the relevant period is longer than 12 months,
  the basis period is the whole of the relevant
  period
• overlap relief to reduce profits to 12 months net

14
COADShort AP Straddling 5 April
15
COADLong AP Straddling a Complete Tax Year
16
COADShort AP Not Straddling 5 April
If the overlap period on commencement was 6
months, overlap relief may be obtained for 4/6
ths of the overlap profits which arose on
commencement
17
COADLong AP Not Straddling a Complete Tax Year
If the overlap period on commencement was 9
months, overlap relief may be obtained for 3/9
ths of the overlap profits which arose on
commencement