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I got stuck in 2nd year basis of assessment. I did not understand at all.
J commenced trading on 1 jan 2014. and prepared her 1st set of accounts to 31 dec that year. her tax adjusted trading profits were 12000 for the y/e dec 2014.
I can calculate profit for 1st tax year. but I stuck in 2nd year.
how came basis period for 14/15 is CYB (12 months)?2.again in 2nd question trading starts on sept 2013 and prepared accounts on aug 2014. tax adjusted profits were 18000 in that year.
In this question also, I could not understand the profit in 2nd tax year?1)Basically it is just because the rules relating to this topic are that if period is twelve months or less (in year 2)and ends during tax year then tax is payable on first twelve months of trading despite the fact that this may have also been assessable in first tax year in question.This means profit is effectively taxed twice.In this example three months profit from January 24 to March 2014 is taxed twice as under rules it is assessable both 2013/2014 tax year and in 2014/15.These are described as overlap profits and relief may be available on them in future years subject to conditions.
2)Again its a case where overlap profits come into play.In first year basis of assessment will be September 2013 March 2014 inclusive.This will be 7/12 x 18000= 10500.The second year will be first twelve months of trading.You might find link below useful if you want more information about this topic.
https://www.taxattack.co.uk/basisperiods.phpsorry I did not understand at all 🙁 🙁
Flintoff commences trade on July 1st 2013 and draws up accounts to June 30th each year. Profits for the first year are £9,000 (due to start up expenses and time to build up sales) and for the second year £30,000 (evenly spread over the year).
Tax Year Relevant accounts Profit for tax
2013-14 July 1st 13- Mar 31st 14 £6,750
2014-15 July 1st 13-June 30th 14 £9,000
2015-16 July 1st 14-June 30th 15 £30,000I am confused here. does it mean If our accounting period is 12 months or less, we should keep profit as it is? 14/15 tax year includes only includes 3 months of a/c period i.e april may june which is less than 12 months so, are we keeping profit as it is according to rule “Period 12 months or less, ends during year : ”Tax is paid on profits of first 12 months trading” ?
Now suppose instead that Flintoff drew up accounts to September 2014:
Tax Year Relevant accounts Profit for tax
2013-14 July 1st 13- Mar 31st 14 £10,800
2014-15 July 1st 13- Sep 30th 14 £14,400
2015-16 Oct 1st 14- Sep 30th 15 £30,000Notes:
The first accounts to September show profit of £18,000 (£9,000 to June and £3,000 per month thereafter)
First year profit is now 9/15 of the period to September
Second year profit is based on the 12 months to September (see table above). This includes April – September, previously untaxed, and overlap profits between October –
March.
I really did not understand how these values 10800, 14,400 30000 and 18000 come from? I could not get clear idea on this topic.can u plz make me understand step by step?I will do my best.I personally found this to be the trickiest part of f6.I think partly because st seems counterintuitive.July 13 to June 14 inclusive.This is a full year accounting period of 12 months but we need to figure out tax implications.The first tax year in which profits are taxed is the tax year in which trade begins which in this case is 13/14.The relevant profits are in the first year the profits from start of trading to the end of the tax year on April 5(often acceptable to end of March).In this case this is nine months from July 2013 to March 2014 inclusive.This is nine months of accounting period to which accounts in question have been drawn up and profits for period in question for July 2013 to June 2014 are 9000.To get figure for first nine months this 9000 must be apportioned to nine months in question.9/12 x 9000 = 6750.This is trading income assessable for tax year 2013/2014.
Now we must consider what tax is assessable for tax year 2014/2015.Since this tax year runs from April 2014 to March 2015 inclusive for tax purposes (technically from April 6 2014 to April 5 2015) there is an accounting period ending in this tax year.It is The end of first period of account.Given this end date the rules are the basis period should be 12 months to accounting date in second year if possible.If not possible (it is possible in this example) it should be based on first 12 months of trading – if accounting date in second tax year is less than twelve months after start of trading.If no accounting end date in second tax year it should be based on actual tax year April to March.Therefore,basis of assessment for 2014/15 should be based on July 2013 to June 2014 inclusive- the twelve months to the accounting date in second tax year.These profits are 9000.This will be assessable profits for second tax year 2014/15.This leads to nine months of overlap profits – profits taxed twice in different tax years.There will be 6750 worth of overlap profits.Now consider third tax year.This will be 2015/16.The current year basis for this year is period of accounts from July 2014 to June 2015 inclusive.Profits are 30000.These will be taxable profits for this basis period.1.”Given this end date the rules are the basis period should be 12 months to accounting date in second year if possible.If not possible (it is possible in this example) it should be based on first 12 months of trading – if accounting date in second tax year is less than twelve months after start of trading.If no accounting end date in second tax year it should be based on actual tax year April to March” .. i did not get this paragraph. .
In example our accounting period ends in tax year 14/15. the accounting period is 2013/14. the main problem for me is after we know the accounting period lies in tax year what should we do? I mean to say, we need look whether our accounting period is 12 months or less or more, right ? in above example, we have a/c period from july -june which is 12 months. am I making sense ? 🙁2..”If not possible (it is possible in this example) it should be based on first 12 months of trading – if accounting date in second tax year is less than twelve months after start of trading. ” can u plz give me short example which makes me crystal clear.
thank you very much .. 🙂 🙂
“This leads to nine months of overlap profits – profits taxed twice in different tax years.”
My questions concerns the calculation of overlap profits: Since there is a coterminuous period, how do I know to which Fiscal Year the overlap profits relate to?
Example from Opentuition Revision question 12:
FY1 (Actual) 1.7.13 – 5.4.14 = 9/11 * 33’000 = 27’000
FY2 (first 12m) 1.7.13 – 1.7.14 = 33’000 + 1/12 * 24’000 = 35’000The Overlap profits are 27’000, not 9/12 * 35’000.
But why?
Common guys, I am stuck here…. from which period do i generally need to take the overlap profits?
sorry, its not intuitive to me
in your link, rule 2 example:
how do i know that my overlap profits are 12k from 08/09 and 1/4 * 12k from 10/11 ?’
could equally have been 6/12 * 21000 + 1/4 * 12 k
Wooo 1st time I’m hearing about this website! Will definitely explore! Thanks for sharing!
@pauljaco said:
https://accatipsandtricks.blogspot.co.uk/2015/08/acca-f6-uk-taxation-basis-of-assessment.htmltry that
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