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change of accounting date sole trader

extending accounting year end for a sole trader

We have a client with a year end of 30 April. The last accounts prepared to 30/4/16 were submitted to HMRC on her 2017 tax return. She has never made much of a profit. In some years, she has barely reached her personal allowance. For various reasons, she would like to extend the date to 31/3/18, a period of 23 months. From what I understand, the period can't be extended longer than 18 months - to 31/10/17 and then no further changes can be made for 5 years.  If we were able to extend the year end  to 31/3/18, there would still be one year end date in the 2018 tax year - changed from 30/4/17 to 31/3/18.Therefore, does that mean that the 2017 tax return would need to be amended to add the period from 1/5/16 to 31/3/17 (which will push the change to the accounting period backwards) and then the  2018 return would show a year end of 31/3/18 (1/4/17 to 31/3/18). 

Having delved into this, HMRC want an accounting year of not more than 12 months.

I feel that this should be  straight forward as there is no overlap but it appears to be overly complicated 

Any thoughts would be appreciated. 

 

 

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11th Oct 2018 12:40

Sorry, your premise is wrong.

You can't do a single set of accounts for 23 months but you can do a 12 and an 11.

It's very straightforward.

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to lionofludesch
11th Oct 2018 12:45

You CAN prepare (aka do) a single set of accounts for the 23 month period. It's just that the tax basis periods are 12 months and 11 months.

I agree that it's very straightforward though. I have no idea why people make such a fuching meal of it.

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to Portia Nina Levin
11th Oct 2018 12:55

Portia Nina Levin wrote:

You CAN prepare (aka do) a single set of accounts for the 23 month period.

Didn't Rupert Grint's accountant think that ?

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to lionofludesch
11th Oct 2018 13:02

No. Grint's accountant thought that he could prepare one long set of accounts, divide it into two sets of artificial accounts, and get an effective change of accounting date based on those artificial accounts. IIRC

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to Portia Nina Levin
11th Oct 2018 13:13

Yes, but was he not dividing it into a 12 and an 8 because HMRC complained about his 20 month accounts ?

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to lionofludesch
11th Oct 2018 13:22

Have a look at s217, ITTOIA .

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to lionofludesch
11th Oct 2018 13:45

Okay. I have misrecollected Grint.

My point though is that the law does not prevent you from preparing accounts for the long period, it prevents the change of accounting date being effective for tax purposes until the subsequent year; which is what happened in Grint and would happen here without separate accounts.

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to Portia Nina Levin
11th Oct 2018 13:56

Was not the point in Grint that he submitted 20 month accounts which were not accepted, the accountant time apportioned everything and the Tribunal said they weren't properly drawn up because they were for a period longer than 18 months?

That left the accounting date at 31 July, which cocked up his plan to shift a boatload of income into the year before the Additional Rate was invented.

Agree with you on the Capital Allowances and that all bets are off on a cessation.

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to lionofludesch
11th Oct 2018 14:16

No. Not exactly. The point in Grint is that if you have a period of accounts that is longer than 18 months you don't get a change of accounting date with that period of accounts.

So they actually prepared accounts for the period 1 August 2008 to 5 April 2010, split them into two periods on the tax return (to 31 July 2009 and to 5 April 2010), and tried to have them all assessed in 2009/10.

However, because the actual accounts were for a 20-month period (ie longer than 18 months) there was not an effective change of accounting date in 2009/10, so the period to 31 July 2009 was assessable in 2009/10, and the period to 5 April 2010 was assessable in 2010/11, along with the 12 months to 5 April 2011.

The same effect as you state, but the point is that there is nothing in tax law that says you can't prepare longer accounts; or that such accounts are invalid. Indeed there is one provision in ITTOIA that could only ever have any effect if a period of accouunts of two years or more was used.

It is just that a period of accounts longer than 18 months may mean that the tax basis periods don't coincide with the accounts.

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to Portia Nina Levin
11th Oct 2018 15:28

And s217, ITTOIA ?

So what did Grint initially put on his SAI for that year ? 20 month accounts ? Or all the numbers time apportioned into 12 and 8 ? If I remember rightly, the issue was that time apportioning was not considered proper accounting.

I thought the conversation went something like this ...

"These accounts are for 20 months. You can't do that."

"Can't you ? OK, I'll resubmit them, time apportioning everything into 12 months and 8 months. How's that ?"

"See you at the FTT."

I must re-read the case ......

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to lionofludesch
11th Oct 2018 16:03

No. As I've already said (having re-read the case myself) Grint's accountant prepared accounts for the period 1 August 2008 to 5 April 2010, and then prepared accounts pages to the 2009/10 tax return for the periods 1 August 2008 to 31 July 2009 and 1 August 2009 to 5 April 2010.

S. 217 does not say that you can't prepare accounts for more than an 18-month period (And I've said that 3 or 4 times now). It says there is not a change of accounting date (in a tax year) if the 18-month requirement is not met. The effect of that in Grint's case was that the change of accounting date occurred in 2010/11. He didn't have to go back and redo (do = prepare) his accounts; although during the course of HMRC's enquiry his accountant had attempted that.

I am making a distinction between tax basis periods, and accounting dates, which the legislation deals with, and the period for which accounts are prepared, where the legislation is not prescriptive.

My point is simply that you can prepare accounts for whatever period you want (my 3rd or 4th time of mentioning), and there is even a provision in ITTOIA that can only possibly apply if there is a period of accounts that covers a period of two years or more (mentioned for the 2nd time). ITTOIA concerns itself with what the tax "accounting date" is and what the "basis period" for any tax year is. Those things are derived from, but are completely independent of, the period for which accounts are prepared (/done).

In Grint there was a discussion of what constituted accounts, and it was considered that the original accounts for the 20-month period were accounts, as were the actual accounts for the 12 month and 8 month period that had been prepared during the progress of the enquiry. However, the 12 month and 8 month tax return accounts (being time apportionments of the original 20 months accounts) were not accounts.

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to Portia Nina Levin
11th Oct 2018 16:42

I actually think we're on the same page, Portia.

Why would you prepare accounts for any period which wasn't a year ?

It can only be to change the accounting date.

Anyway - so far as the OP is concerned, it seems that his proposed 23 month accounts will not change the accounting date.

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11th Oct 2018 12:55

Prepare a set of accounts 01.05.16 to 31.03.17 and include these figures along with the original y/e 30.04.16 accounts on the 2017 TR and submit this as an amended TR.

Complete the 2018 TR with the year end 31.03.18 figures on

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11th Oct 2018 13:04

This really is pretty basic however you have caught me in a good mood so ........

The 2017 tax return remain unchanged (Y/E 30th April 2016)
The 2018 tax return will contain accounts to 30th April 2017 plus 11 month figures to 31st March 2018 less the overlap brought forward.

Now go and book yourself on a basic tax course.

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By Matrix
11th Oct 2018 13:31

Both dates fall into 2017-18 and you prepare a set of accounts for 23 months (or two and add them together which gives the same result). Capital allowances would have to be done separately.

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to Matrix
11th Oct 2018 13:57

See my discussion with Portia above.

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