Accounts Period

Accounts Period

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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

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By AnonymousUser
12th Dec 2001 23:06

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.

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By Accounting WEB
12th Dec 2001 19:57

Overlap period for above example..??
Hang on a mo...
If comm. 1/1/01, first accs to 30/9/01 and yearly thereafter,

2000/01 basis = 3/9 x Jan-Sep 01 acc's,
2001/02 basis = 6/9 x Ja-Sep 01, plus 3/12 x y/e 9/02
(OK, I know you said exact number of days, but either way, there's no overlap there, yet, as far as I can see..?)
2002/03 basis = y/e 30/9/02
Therefore the overlap occurs here, 3 months of y/e 09/02 having already been assessed.
...Or have I got it wrong?
Many thanks for replies,
Tom

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By Accounting WEB
12th Dec 2001 20:07

Sorry! Disregard last post!
Whoops! Yes, my dates are all wrong there, of course! Apologies, JT is right. (my 01/02 basis should read:
9 months to 9/01, plus 3/12 x y/e 9/02

Hold on again...that STILL means that 3 months of 09/02 acc's are overlapped (as well as 1/1/01 to 31/3/01). Hmmm... Or am I about to post another "Aaarggh! Sorry!" message in 5 minutes?

Tom

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By Accounting WEB
12th Dec 2001 21:26

I'm Confused
Would it be easier to do what the tax man wants?
i.e. One set to March 31st then annually thereafter.

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By Accounting WEB
11th Dec 2001 20:44

Only one set
Either you asked the wrong question or misunderstood the answer because I cannot believe that the Inland Revenue would get such a basic issue wrong.

Sorry, I went into a time warp. This is so typical of the dangers of using the help line. You are given some off the cuff advice by someone who does not owe you a duty of car, who is not a tax adviser and who probably did not give you their name.

You are assessed in the first year on the actual profits. They can be arrived at by preparing accounts to 31 March following the date you started. You are then stuck with that date each year unless you go through the rigmarole of a change of accounting date.

The other way is to prepare accounts to your normal accounting date and pro rata as you thought.

I assume that you have considered overlap profits when looking at the accounting date. If you give some numbers I am sure that someone whose name is very much like Jay Tanna will produce numbers that tel you whether you are right or wrong. Sorry for volunteering you Jay butdo you need to take your mind off a certain football team's form?

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By AnonymousUser
11th Dec 2001 23:03

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

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By Accounting WEB
11th Dec 2001 23:11

My profits
Jim/Jay

I previously prepared accounts to September every year but in 1999 took a full-time job under PAYE. I went self-employed again late in December 2000. My profits to end of March 2000 are £1,820 and from 1/4/01 to end September are estimated at £5,940 Total £7,760 for just over 9 months. I have £6,339 of PAYE income in the year to 5/4/01 on which I have paid £1,097.91 tax on a taxcode of 438L.

Thanks for your help.

PS. I did repeat to the Tax man that I wanted to prepare my accounts to the end of September but he said I should use the actual figures to the end of March.

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By Accounting WEB
11th Dec 2001 23:14

Correction
March 2000 should have read March 2001.

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By AnonymousUser
11th Dec 2001 23:47

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.

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By AnonymousUser
11th Dec 2001 23:56

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,

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By Accounting WEB
12th Dec 2001 10:12

Thanks Jay
Jay

My clients are members of the public. I have not formally notified the Inland Revenue of becoming self-employed again as of January this year. I left my last job through ill-health in July 2000 and was unable to work for 4 - 5 months.

It would be nice to have dividend income etc to be concerned about!

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