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Dear sir,
Could you help me with the question no. 44 from Kaplan exam kit? I understand that for Fabiola first POA is Jun 2019 till 31 Oct 2019 so it does not fall into second tax year and the basis period for second tax year should be from 5th April 2020 till 5th April 2021 but the solution is not like that,in th3 solution second tax year should be assessed on CYB. I do not understand, this is the opposite from what I understood from your lecture.
Thanks for the help.
AnaHi Ana
I do not have the Kaplan kit to access the question information – if you can give me the accounting period dates and show me which part of the answer you do not understand then I will try to help.
I would recommend however that you look back at the study notes which identify the bases of assessment in opening years and most particularly the 2nd tax year and then seek to apply in your exampleNazim and Laura have been in partnership for many years, preparing accounts to 31 Oct and sharing profits equally. On 1 june 2019 Fabiola joind the partnership and agreed praofit sharing ratio was 2:2:1 to Nazim, Laura and Fabiola. Adjusted trading profits for year ended 31 Oct 2019 is 240.000 and for 2020 300.000. The question is to choose correct statement. The correct answer is that Fabiola will be assessed on trading income of 45.000 in 2019/20, she will be assessed on trading income in 20/21 of 60.000 and she will have overlap profits of 25.000. Regarding this solution I understand that for Fabiola first POA is Jun 2019 till 31 Oct 2019 so it does not fall into second tax year and the basis period for second tax year should be from 5th April 2020 till 5th April 2021 (at least this is how I understood the lecture on basis period) but the solution is not like that,in the solution second tax year should be assessed on CYB 31 Oct 2019 till 31 Oct 20 which gives solution of 60.000.
Could you know help me to undertand this question?
Thank you.
AnaHi Ana – thank you for sending the additional information and the issue is as I suspected that you have not properly understood the basis of assessment in the 2nd tax year.
So far as Fabiola is concerned she started to trade on 1 June 2019 and had an accounting period of 5 months to 31 October 2019, followed by the accounting year ended 31 October 2020.
Thus 2019/20 is the first tax year and an ACTUAL basis will apply- the 2nd tax year is therefore 2020/21 for which there IS an accounting period ended in the tax year and that accounting period is the accounting YEAR ended 31 October 2020 and therefore CYB will apply – this is entirely consistent with the notes in Chapter 6 and the application of these rules to partnerships in Chapter 8.
An ACTUAL basis of assessment in the 2nd tax year ONLY applies where the taxpayer has NO accounting period ended in that year!
Hope this helps you to now understand answer
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