PeterCoekin
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How can I shorten the basis period?

How can I shorten the basis period?

I have a sole trader client whose business is generating profits and whose year end is 30th April.

For reasons best known to himself he decided, with the help of an outside consultant, to cease trading as a sole trader on 31st March 2011 and to form two new companies who purchased the business, and who began trading on 1st April 2011. As far as I know there was no actual legal documentation reflecting the sale.

The staff have been transferred to the new companies and subsequent VAT returns reflect this change of status. As he sold the business as a going concern to non VAT registered companies there was VAT on the consideration (paid in instalments), but apart from that the VAT returns have had no output or input tax on subsequent VAT returns.

The 2010/11 tax return would ordinarily reflect the basis period as the year to 30th April 2010. Because of the way he sold the business I believe the basis period is now the period 1st May 2009 to 31st March 2011 - an extremely long period of account and one which will generate a huge tax bill.

I am racking my brains to see if I can justify a second basis period for the self employment which ends in the 2011/12 tax year, which should allow a lower overall tax bill. I wonder if anyone had any thoughts?
Thanks

Peter

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23rd Nov 2011 13:09

Overlap relief?

I would have expected that the cessation would trigger a claim to overlap relief unless the first few years resulted in losses.

Also, with the capital allowances I would look at the possibilty of succession elections to minimise balancing charges.

 

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23rd Nov 2011 14:11

Agreed

Just to clarify:

If he started trading on 1st May 2004 and prepared his first accounts to 30th April 2005, his 2004/05 tax liability would have been based on 11/12 (approx. - it should actually be calculated to the day) of his profits for the y/e 30th April 2005 and his 2005/06 tax liability would also have been based on (12/12 of) his profits for the y/e 30th April 2005.  He is entitled to deduct 11 months of overlap relief - being the profits apportioned to the period from 1st May 2004 to 5th April 2005 - from the profits for the final 23 month period to cessation on 31st March 2011, leaving just the 12 months of profits chargeable in 2010/11.

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FirstTab
23rd Nov 2011 15:09

Hi thanks for the response both.

I appreciate the point on overlap profits. As he had losses on startup there are no overlap profits to deduct.

I will look again into his capital allowance position, though this will not make a great deal of difference ... I guess I was hoping for a magic wand!

Regards

Peter

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