This may seem like a stupid question, but having phoned HMRC & got "advice" from a technical adviser, I'm now a bit confused.
Sole trader business started 01/01/10 (wants year end to be 30th April)
4 months accounts 01/01/10 to 30/04/10 - Loss £4,000
12 months accounts 01/05/10 to 30/04/11 - Profit £12,000
Client submitted tax return herself in 2009/10
I understand the basis periods are as follows:-
1st year 2009/10 - 01/01/10 to 05/04/10 (actual basis)
2nd year 2010/11 - 01/01/10 to 31/12/10 (1st 12 months)
3rd year - 2011/12 - 01/05/10 - 30/04/11 (12 months to accounting date)
I have been told by the HMRC techical adviser, that I must attach accounts that clearly show the accounting date as:-
01/01/10 to 05/04/10 for 2009/10 tax year
06/04/10 to 05/04/11 for 2010/11 tax year
Surely that advice is not correct (does anyone prepare a different set of accounts for the first two years)?
I understood I could make the accounts up to any date (attach these to the return), then apportion these accounts by number of days for the relevant tax year, showing my calculations. My question is, how do I show this correctly on 2009/10 & 2010/11 SA Tax Return (I'm using the HMRC software, so how does it calculate the tax correctly for the apportioned profits - yes I know I should bite the bullet & buy software, definately next year)?
Thanks.
Replies (8)
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You are right BUT
You are right, assuming of course that the first accounts were drawn up to 30 April 2010 but if the first set though were drawn up for the period from commencement to 30 April 2011 then HMRC will be right (because there would be no accounting date ending in 2010/11) HS222 is helpful here. It may be that the client completed the 2010 return incorrectly if she not only showed her basis period ending on 5 April 2010 but also her accounting date as 5 April 2010. She should also have made use of the "Adjustment" to profits box but again it's doubtful that this has been done correctly. Hopefully you are able to view the 2010 Return online and also amend it if required ....
Full Self Employment pages required to see the boxes
You will need to complete the Full Self Employement pages to get access to those boxes. If completing online then the adjustment box is just about at the end of the section relating to Self Emplyment. The accounting period is 01/01/2010 to 30/04/2010. Your basis period is 01/01/2010 to 31/12/2010. Overlap arises from 01/01/2010 to 05/04/2010 and this is the figure that was on the 2010 Return. Enter it as Overlap relief carried forward. You will need to enter a figure in box 67 of the Full Self Employment pages to add the adjustment required for the period from 01/05/2010 to 31/12/2010 and that figure will be 245/365 x profit for accounts for the year to 30/04/2011 or an estimate of that if figures are not yet available. In the 2012 Return you will enter details for the year ended 30/4/2011 and the basis period will be the same as the accounting year with further Overlap arising for the period 01/05/2010 to 31/12/2010. That's why it is easier to pick a 5/4 year end but as you say you can pick any....
re 5th april v 31st March
You can get HMRC to treat them as Co-terminous so no they won't worry about the 5 days. There is a cashflow advantage in picking a 30 April year end as the profits tend to be lower in the first years of trading too. It also gives you longer to prepare accounts but it is a pain in the whatsit to try and explain basis periods etc to a client!!