Trading profit- basis period HELP

Hi Louise,
Y/E Profit (£)
31-Jan-10 6000
31-Jan-11 7000
30-Jun-12 11000
30-Jun-13 8000

Tax year Amount (£) formula Description
2008/09 1000 =6000*2/12 from 1st Feb to 31 March 2008
2009/10 6000 =6000 from 1st Feb to 31 Jan 2010
2010/11 7000 =7000 From 1st Feb 2010 to 31 Jan 2011
2011/12 8666.667 =(11000*5/12)+(7000*7/12) – see below
2012/13 7764.706 =11000*12/17 see below
2013/14 8000 =8000 Actual profit for year ending 30th June 2013

First thing you need to do is to ascertain the year of change.

1) Identify the “year of change”.
2) Calculate taxable profits for all tax years either side of the year of change:

Before the change – tax 12 months of profits up to the “old” accounts date.

After the change – tax 12 months of profits up to the “new” accounts date.

3) Identify the “gap” period – the “gap” here is the period of profits which have not thus far been taxed.

4) Tax the profits in the “gap”:

If the “gap” exceeds 12 months, reduce the profits by using up an appropriate amount of overlap relief.

If the “gap” is less than 12 months, tax an appropriate amount of profits from the previous period to make the gap up to the 12 months. This will create additional overlap relief.

Select the appropriate the tax year of change. (you need to select earlier year)

1) if you had tax the accounting period based on old date i.e. 31 Jan. then a accounting period would end on 31-jan-2012. which falls in tax year 2011/12
2) the new accounting period falls on 30th Jun 2012. which falls in tax year 2012/13

So the year of change is 2011/12

Tax year
2008/09
You need to tax from start of accounting period to 31 March. i.e. for 2 months.

2009/10
Since the first accounting period ends on 31 Jan, which is 12 months. We would tax whole full year of 12 months.
Please note that it would create 2 months of overlap already taxed in 2008/09.

2010/11
In this tax year, ideally you would tax 12 month account period. i.e. 1st feb to 31 Jan 2012.

2011/12
This is the year of change. So you would work on this tax year later.

2012/13
Since in this tax year the accounting period ends i.e. you would tax 12 months out of 17 months.

Now you would calculate the amount for 2011/12

2010/11: – £7,000 – tax

2011/12: – ?

2012/13: – £7,765 (taxed 12 months out of 17 months)

Now for 2011/12 you would tax remain

Tax remaining 5 months out of 17 months: – £11,000 * 5/12 (5 months)
For rest 7 months, take it from previous year: – £7,000 * 7/12 (12 months)

That would give a 12 month profit of £8,667 for tax year 2011/12

Please note that it would create overlap profit of 9 months.
2 months of 2008/09 – £6,000 * 2/12
7 month as calculated above – £7,000 * 7/12
Overlap profit available : – £5,083

Hope it solves your query

Regards
Raj

I fel that my answer might have confused you.
if the business has already started long back and now the trader has changed the accounting period. in that case following would be the answer.

2009/10 6000 =6000 from 1st Feb to 31 Jan 2010
2010/11 7000 =7000 From 1st Feb 2010 to 31 Jan 2011
2011/12 8666.667 =(11000*5/12)+(7000*7/12)
2012/13 7764.706 =11000*12/17
2013/14 8000 =8000 Actual profit for year ending 30th June 2013

Hope it does make sense to you now.

Regards
Raj