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Tax Insider Tip: Choose Your Accounting Date

31st Mar 2014
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For the self-employed, the choice of accounting date can be crucial as it will determine which profits are taxed twice and also the level of overlap relief available on cessation or a change of accounting date.
 
To make life easier you may wish to choose an accounting date of either 31 March or 5 April to coincide with the tax year. This will eliminate any overlap profit.
 
However, if you choose a date other than 31 March or 5 April, some profits will be taxed twice in the early years. These ‘overlap’ profits are carried forward until either the business changes its year end or ceases, when relief is given in the form of overlap relief.
 
A date early in the tax year (e.g. 30 April) will give the greatest lag between the end of the accounting period and the date on which the tax must be paid.
 
Example:
Holly starts in business as a sole trader on 1 January 2013. For 2012/13 she is assessed on actual profits from 1 January 2013 to 5 April 2013.
 
The profits on which she is assessed in the second year depend on her choice of accounting date.
 
If she chooses an accounting date of 31 March, in 2013/14 she is taxed on the profits to 31 March 2014. Only profits from 1 to 5 April 2013 are taxed twice.
 
However, if she chooses an accounting date of 31 December, in 2013/14 she will be taxed on the profit for the year to 31 December 2013. The profits for the period from 1 January 2013 to 5 April 2013 were also taxed in 2012/13 and these will be taxed twice as overlap profits.
 
 

This is a sample tip taken from our 136 page guide:
101 Ultimate Tax Strategies Revealed.

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