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Greetings,
I am struggling to understand CA computation on long POA.
As i understand, in case of Opening year rules and also in changing the length of POA, the AIA and WDA are pro-rated, but when a trader/company is commencing trading on POA that is longer than 12 months period continuously, CA computation is divided between first 12 months and rest of the POA and is streched on 2 tax years?? Is there a difference in CA computation between trader and ltd on this matter?thanks
There IS a difference between Income Tax (IT) and Corporation Tax (CT)!
In IT we prepare the CA computation for the long period of account – usually seen in an opening years example. Hence for a 15 month opening period the AIA and WDA are pro rated so that 15/12 of these annual allowances would be available (FYA is of course never pro rated) and this CA will be deducted in arriving at the tax adjusted trading profit for this period which will then be used in establishing the assessments in the opening tax years of assessment.
In CT either in opening / closing period or more usually in a change of accounting date of the company where a long period of account arises the basic adjustment of profit is performed for the period of account which is then pro rated between the two CAP’s which will arise. Only then do we do the CA computations for each CAP – hence for a company with a 15 month period of account two CA comps are prepared for:
– the first CAP of 12 months, and then
– the second CAP of 3 months
Clearly then for the second CAP of 3 months both the AIA and WDA will be time apportioned with 3/12 of those allowances being appliedTo simplify,
when a trader is commencing trade for 15 months, AIA and WDA are pro-rated (extended to 15/12),
when a company is commencing trade for 15 months, CA is divided in two (12 + 3 months) separate computations?
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