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Hi
I am looking at a question that involves tax adjusted trading profit.
The question in the BPP book States:
“Ronald commenced self employment on 01/01/2016. He has tax adjusted trading profit of £3840 for the 4 month period ended 30 April 2016, and £12060 for the year ended 30 April 2017. These figures are before taking account capital allowances.
My question is do I use Opening year rules here as I don’t think it is used in the answer from BPP. If it is not opening year rules could you let me know why?
The answer BPP give is:
Period ended 30 April 2016 £3840
Period ended 30 April 2017 £12060
Less Capital Allowances ( £432)
Total of (8/12) to 2016/17 assessment= £11628 = £7752 which was added to the 2016/17 figure.Answer for 2016/17 Trading Profit = £11592
Capital Allowances were calculated on the year 2016/17 where they bought an asset on 1st September 16 but it seems that they have applied it to the 30 April 17 figure?
Could you please try and explain how they have made the tax assessment?
Many thanks
EmmaYou do not prepare CA computations for tax years eg 2016/17!
CA comps are prepared for the accounting period and then deducted from the profit for that period to derive the tax adjusted trading profit of that accounting period – only then do you attempt to use the bases of assessment to establish the assessments for the relevant tax years.
If the asset was purchased on 1 Sept 2016 that is within the accounting period of the year ended 30 April 2017 so the CA is deducted in deriving the tax adjusted trading profit of that period. Then you use the opening years bases of assessment – 2016/17 is the 2nd tax year and in this example the basis of assessment will be the first 12 months.
That will be all of the opening 4 month period plus 8 months of the period to 30 April 2017.
I would recommend that you work through the OT lectures (if not already done?) as your question suggests a lack of understanding of some of the basic principles of CA’s and bases of assessment.If assessment period is first 12 month.. then why is full profit 12060 of pe april 2017 taken into consideration instead of time apportionment?
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