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I’ve watched the lectures and read additional extracts and notes but I don’t understand how to work out the 2nd tax years calculation.
could you please explain this question to me.George commenced trade on 1 October 2012 and decided to prepare accounts to 31 December each year.
His tax adjusted trading profits are:Period to 31 December 2013 $30,000
Year ended 31 December 2014 $ 36,000
Year end 31 December 2015 $ 40,000Also I don’t understand what it means when it says “period to 31 December” .
Thank youThe second tax year is always the most difficult to deal with and I regret that you just have to learn the rules as laid out in the notes and illustrated in the lecture examples.
The term “period to ……..” is simply the wording used to describe the opening accounting period when the length is not 12 months and is not therefore an “accounting year ended”.
You know from the notes that if as in the example above, the length of the accounting period ended in the 2nd tax year is NOT 12 months then CYB cannot be used and either of 2 alternatives arise if there is indeed an accounting period ended in that 2nd tax year.
Here the 1st tax year is 2012/13 where the basis of assessment is always actual. This means 2013/14 is the 2nd tax year of assessment – do we have an a/c period ended in 2013/14 and if so how long? Answer – yes we do have an a/c period ended in that tax year, it being the opening 15 month period ended 31 December 2013.
What period do we therefore use as our basis of assessment???
Go back to the notes and then show me your answerGeorge commenced trade on 1 October 2012 and decided to prepare accounts to 31 December each year.
His tax adjusted trading profits are:
Period to 31 December 2013 $30,000
Year ended 31 December 2014 $ 36,000
Year end 31 December 2015 $ 40,000First tax year : 12/13 – (6/15 x $30,000) = $12,000
Second tax year : 13/14 – ( 12/15 x $30,000) = $24,000 ( this is because period of accounting is less than 12 months)
Third Tax year – 14/15 – $36,000
Fourth tax year – 15/16 – $40,000In the second tax year – 2013/14 we have a LONG period (15 months) ended in that year so we use the last 12 months of that period, so the calculation will indeed be 12/15 x 30,000 BUT you need to know what the basis period is to be able to determine what, if any overlap profit arises!.
14/15 and 15/16 will both use CYB and hence assess the periods you have identified
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