I became self employed in January 2001. I want to prepare accounts to September each year, so my first accounts will be to September 2001. When I finally send in my tax return for 2000/01 I assumed I would declare 3/9ths of my profit but the tax office say I should work out the actual figures from 1/1/01 to end March 01. This would mean preparing two sets of accounts. Can some one explain which is the right way to do this. The tax office need my figures asap as I still owe £5,000 in back tax from 1998.
Kev
Kevin Smith
Replies (11)
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Let me clarify the position
Kevin's accounting dates are as follows:
01/01/01 to 30/09/01
01/10/01 to 30/09/02
The rules for the opening tax years are as per ss60 and 61 TA 1988.
Year 1 - (2000/01): Profit from date of commencement to the end of tax year (actual profits!)
This is 01/01/2001 to 05/04/01 i.e. 95/272 days
Year 2 - (2001/02): When the first accounts ends in tax year 2 (i.e. 2001/02 in our case) but is for less than 12 months, then you take 12 months profits from commencement.
This is: 01/01/01 to 31/12/01 i.e. 9 months and 3 months from second set of accounts.
The overlap period is: 01/01/01 to 05/04/01 because this has already been assessed in 2000/01.
Year 3 - (2002/03): Normally the profits assessed are based on accounting period ending in the tax year.
This is year ended 30/09/02.
The overlap period is: 01/10/01 to 31/12/01 (i.e. 3 months - 92 days) because already assessed in 2001/02 above.
So the total overlap period are: 95 days from year 1 and 92 days from year 3. You need to keep a record of this every year by making a note on your tax computations every year.
Hope this clarifies the position.
And what's wrong with Liverpool's form?!
Jim
So... I presume you are not a Liverpool fan then. Forgive Jay for basking in the glory of Liverpool's success,- I certainly am, the nineties were too barren a period for us.
Just remember, You'll Never Walk Alone!
PS. Kev....Jim is right,- there is only need to prepare 1 set of accounts. Just do to Sept as normal, and give the IR the figs for one 1/3 of the profits,- ie. 3/9!
Hope this helps
Steve
What does actual mean to Inland Revenue?
Kevin,
The Inland Revenue expects you to work out "actual" figures in days not months because of the size of figures involved. Therefore, for your first period (2000/01) you will take 95 days of profit (01/01/2001 to 05/04/2001). You don't have to prepare 2 sets of accounts.
For the second year you normally take figures based on first 12 months accounts (if any). If not then you make up 12 months by taking 9 months and 3 months from the subsequent period.
this now brings us to Jims point re overlapping of periods. In your case the overlap period is 95 days being 01/01/01 to 05/04/01.
The relevant profits are:
95/272 * 7, 760 = 2,710.
As to football, L'pool are well placed on the premiership table with a game in hand. It is a question of overcoming Fulham on Wednesday! 90's were a difficult years for most teams except certain ManU. Arsenal were satisfied being second best and that other south London team with foreign mercenaries (chelsea!) were no where to be seen!
Let's hope Liverpool can be champions bearing in mind next year there is only one place in champions league from each countries in Europe unless the team wins this year. L'pool have a moutain to climb.
Hope this helps.
Kevin did you notify the Inland Revenue in good time?
Kevin,
Did you notify the Inland Revenue within the statutory 3 months of your starting as a self employed? If not there will be a fixed penalty of £100.
Also, I hope your contract(s) are with client(s) other than your previous employer(s). Otherwise, you may be treated as employee of your client(s) and your income will be grossed up to arrive at "employers" PAYE liabilities. You won't be affected by this unless the grossing up exercise makes you a higher rate taxpayer in which case all your investment income (divis, interests etc) will be taxed appropriately.
Regards,