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Change of Accounting Period (AP)

Change of accounting period to alleviate higher tax bills due to SEISS claims

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I know this subject has been hammered to death recently and I apologise if I've missed something whilst on holiday.

A subby client who normally receives tax refunds is facing a massive tax bill next January due to SEISS grants claimed, pushing a substantial part of his income into the 40% bracket; obviously without CIS tax suffered. Many people have suggested changing the AP and claiming overlap relief. Circumstances are a 30/04/2020 year end plus SEISS ( which actually supported his considerable lost income in year ended 30/04/2021 ).

I can only see that his AP could be extended which in fact increases his 2020-21 income and therefore increase his tax bill. Overlap relief restricted to 6/11ths of brought forward overlap relief, which doesn't cover the increased income.

This is my first change of AP in 35 years of practice, so am I missing something ?

 

Replies (30)

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By Paul Crowley
08th Sep 2021 11:49

A subbie with a 30 April year end has never been matching tax with the correct accounting year.
Still with the change in basis needing to happen soon he could just look to match up with the tax year next year as at least one year will have a year of substantial lost income and only 2 SEISS claims to be added on

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By David Ex
08th Sep 2021 11:50

geraldw wrote:

I know this subject has been hammered to death recently and I apologise if I've missed something whilst on holiday.

Last week, from memory if you search.

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Stepurhan
By stepurhan
08th Sep 2021 11:59

An explanation of why his AP could only be extended?

You have all the figures. You can look at different year ends and run those figures to see if any alternative year ends are better.

I am not sure what else you are expecting from us. Plenty of people who operate through companies (not always for tax reasons) saw nothing, so your client is still better off than many other people. Paying higher rate tax on income they got for nothing is not the most sympathetic of positions.

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Replying to stepurhan:
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By Paul Crowley
08th Sep 2021 12:03

Agree
Self-employed scooped the pool being able to continue working exactly as before and claim more than a year's worth of net profit

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Replying to Paul Crowley:
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By Geoff56
08th Sep 2021 13:55

Although if they were able to continue working exactly as before, surely they should not have claimed.

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Replying to Paul Crowley:
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By paulwakefield1
08th Sep 2021 14:00

"which actually supported his considerable lost income in year ended 30/04/2021"

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Replying to Paul Crowley:
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By geraldw
08th Sep 2021 14:57

Net profit 2020 £43,625
Net profit 2021 £23,706

I wouldn't have called a drop of £19,910 having " scooped the pool " or "being able to continue working exactly as before "

Don't you just love warm human nature extended to those struggling to pay their bills and support childeren through a pandemic which was not of ther choosing

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Replying to stepurhan:
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By geraldw
08th Sep 2021 15:01

Are you saying that his AP could be turned back into the previous tax year ?
That would be worth looking at.

With regard to people who operate through companies who saw nothing - they have mainipulated the corporate tax system for years paying much less tax on dividend income. Please get real.

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Stepurhan
By stepurhan
08th Sep 2021 12:03

Let me amend my previous post. What are you expecting from us that was not already covered (extensively) in the thread on exactly the same subject (same client even?) back in March?

https://www.accountingweb.co.uk/any-answers/taxable-trading-income-for-2...

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Replying to stepurhan:
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By geraldw
08th Sep 2021 15:13

Sadly I don't have time to read every thread, particularly as I don't work on holiday.
( Already apologised for that )
Thanks very much for the link which I will take a look at.

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Replying to geraldw:
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By Paul Crowley
08th Sep 2021 16:05

Your thread, your question
How could you have missed it?

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Replying to Paul Crowley:
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By geraldw
08th Sep 2021 16:17

I have just looked at it, and indeed it was my thread, and indeed I could find nothing that helps with my AP question of today.

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Replying to geraldw:
RLI
By lionofludesch
08th Sep 2021 16:28

Ah well, it seems you've overlooked legislation that's been in place for the last 25 years.

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Replying to geraldw:
Stepurhan
By stepurhan
08th Sep 2021 17:14

geraldw wrote:

I have just looked at it, and indeed it was my thread, and indeed I could find nothing that helps with my AP question of today.

Then let me put my query another way.

What do you think has changed between March 2021 and now?

You appear to be looking for some magic wand to solve your "problem". Repeating the same question every six months is not going to make a solution magically appear. Nothing has changed, including the client you are asking about judging by the similarity of the details. I can see why you would forget that thread though, given how active you are in responding to other people's threads. /s

As for

Quote:
Don't you just love warm human nature extended to those struggling to pay their bills and support childeren through a pandemic which was not of ther choosing
You clearly missed the point I made about those operating through a limited company that got ABSOLUTELY NOTHING. Where is your sympathy for them? I had a client commit suicide when their shop (run through a limited company) was closed with no other source of income. Is your client that desperate?
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Replying to stepurhan:
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By geraldw
08th Sep 2021 17:34

I have no idea why your client's business closed and it is none of my business, but am truly sorry that they committed suicide. And for all other such cases, including those not necessarily caused by tax issues, such as lost revenue streams etc.
With regard to those operating through Ltd Companies they have enjoyed tax free dividends up to £10k, then £5k, now £2k.
Along with tax rates of 7.5% compared to my client's basic rate tax paid at 20%
That's all I want to say on the matter.
BTW, I haven't looked for a magic wand or repeated my question. This post was specifically about changing AD which I haven't experienced before.

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Replying to geraldw:
Stepurhan
By stepurhan
09th Sep 2021 10:56

geraldw wrote:

I have no idea why your client's business closed and it is none of my business, but am truly sorry that they committed suicide.

We are talking about the SEISS grants. Why do you think his shop was closed?
Quote:
With regard to those operating through Ltd Companies they have enjoyed tax free dividends up to £10k, then £5k, now £2k.
Along with tax rates of 7.5% compared to my client's basic rate tax paid at 20%
That's all I want to say on the matter.
So you don't want to cover the corporation tax the company pays on profits before any of those calculations? Rather a big omission in the total amount paid over to HMRC don't you think?

Please do some calculations on the difference between self-employed tax and tax through a limited company (including corporation tax) under current rules. I think you will find that the savings are marginal at best now.

So, you are essentially saying that a group that had a minimal tax advantage deserved to get nothing, whilst your client should be entitled to a tax reduction on the FREE money they got. Interesting stance.

Quote:
BTW, I haven't looked for a magic wand or repeated my question. This post was specifically about changing AD which I haven't experienced before.

Go back and read your last thread again. Changing the AP was mentioned at least three times. (I mentioned it myself). Is there a particular reason you haven't followed up on this for 6 months?
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By Cazzie B
08th Sep 2021 13:00

Why is overlap relief restricted?

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Replying to Cazzie B:
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By Paul Crowley
08th Sep 2021 13:41

OP has probably read somewhere that the accounts can only be stretched a maximum of 6 months, making 18 months in total

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Replying to Paul Crowley:
RLI
By lionofludesch
08th Sep 2021 15:19

Jaysus. Really ?

OP - nothing to stop there being two period ends in the same tax year, say, a 12 month period to April and an 11 month period to the following March. Both taxable - less all the overlap relief.

What's crucial is - are the profits in the second, 11 month, period more or less than the overlap relief ?

Incidentally, I would never recommend a CIS client to have a year end other than 5th April (unless it was 31st March).

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Replying to lionofludesch:
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By geraldw
08th Sep 2021 15:28

Thank you Lion

As it happens this client did actually start trading on 1st May to following 30th April.
Didn't shorten the first AP but I can see now why it would have been a good idea - including matching CIS suffered in a tax year to the earnings tax year.
Hindsight .................................

Profits in the second 11 month period would be higher than the overlap relief

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Replying to geraldw:
RLI
By lionofludesch
08th Sep 2021 15:37

geraldw wrote:

Thank you Lion

As it happens this client did actually start trading on 1st May to following 30th April.
Didn't shorten the first AP but I can see now why it would have been a good idea - including matching CIS suffered in a tax year to the earnings tax year.
Hindsight .................................

Profits in the second 11 month period would be higher than the overlap relief

Then you're stuffed.

If profits don't accrue evenly over the 11 month period, consider moving the date to, say, July or August. You'd then need to compare those profits with an appropriate proportion of the overlap relief.

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Replying to lionofludesch:
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By Paul Crowley
08th Sep 2021 16:01

"Incidentally, I would never recommend a CIS client to have a year end other than 5th April (unless it was 31st March)."

Same here
I have one that was an old legacy client, overlap tiny on introduction of current year basis
Another that just cannot understand the rules and only does a few each year
Every tax return needs amending

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By possep
08th Sep 2021 13:59

Consider doing accounts for almost the next year to 31/03/2021. This will release the overlap (apart from 5 days). He will be assessed in 2020/21 on the year ended 30/04/2020 and the almost year to 31/03/2021 less overlap. I suggest a YE of 31/02/21 rather than 05/04/2021 as it might be better for MTD SA IT. Do two sets of accounts to avoid the position Rupert Grint was put in as a 23 month one set of accounts was ignored in his case for tax purposes.

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Replying to possep:
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By geraldw
08th Sep 2021 15:09

Thanks for some constructive advice.
Is it possible to submit 2 sets of accounts on one tax return ?

I understood the relevant period to run from the end of the previous AP to the new AP. That would indeed be 23 months and in excess of the maximum 18 month period required to offset overlap relief etc

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Replying to geraldw:
RLI
By lionofludesch
08th Sep 2021 15:21

geraldw wrote:
That would indeed be 23 months and in excess of the maximum 18 month period required to offset overlap relief etc

This requirement doesn't exist.

You're grand.

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Replying to possep:
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By geraldw
08th Sep 2021 17:17

Thanks again for this. I was of the mindset that going from 01/05/2019 to 31/03/2021 would be a 23 month accounting period and basis period.
I have now grasped the concept of 12 months to 30/04/202o plus 11 months to 31/03/2021.
How does that get entered on the tax return ? When it only asks for one date to which the records are made up to.
Is it White Box information ?
I use HMRC SA filing for small sole trader clients.

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Replying to geraldw:
RLI
By lionofludesch
08th Sep 2021 17:23

geraldw wrote:

Thanks again for this. I was of the mindset that going from 01/05/2019 to 31/03/2021 would be a 23 month accounting period and basis period.
I have now grasped the concept of 12 months to 30/04/202o plus 11 months to 31/03/2021.
How does that get entered on the tax return ? When it only asks for one date to which the records are made up to.
Is it White Box information ?
I use HMRC SA filing for small sole trader clients.

Fill in two sets of self assessment pages.

It's not uncommon for folk to have more than one self employment so your software should accept it.

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Replying to lionofludesch:
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By geraldw
08th Sep 2021 17:39

Thanks Lion
I truly wish we could have got to this sooner.
If it is classed as a second self employment will HMRC think that it is a new commencement ?
This new territory for me

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Replying to geraldw:
RLI
By lionofludesch
08th Sep 2021 18:18

geraldw wrote:

Thanks Lion
I truly wish we could have got to this sooner.
If it is classed as a second self employment will HMRC think that it is a new commencement ?

No. They will have the dates of the periods, will they not ?

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Replying to lionofludesch:
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By geraldw
08th Sep 2021 18:26

Hi Lion
Again
Many thanks

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