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HMRC SA222 and SA103F - wrong and/or incompatible?

Which of the alternatives for 2017-18 SA103f Boxes 8 & 9 and Basis Period Boxes 66 & 67 are correct?

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Could somebody PLEASE have a look at HMRC’s Self-employment (full) notes 2017/18 [sa103f_2018] and HS222 "How to calculate your taxable profits 2018" with respect to Accounting Period dates (boxes 8 & 9) please?  Either I am totally confused or they are a) wrong and/or b) inconsistent one with the other.  [Text in these brackets not relevant for the client example I am using]  The inconsistency in their advice is very undermining of my confidence.

My client started trading 8.4.16; first accounts made up to 31.5.17.  2nd accts made up to 31.5.2018.  2016/17 SAR Basis period:  8.4.16-5.4.17 

I believe her 2017/18 Basis period is 1.6.16 -31.5.17 because a) the business commenced in the tax year before 2017/18 and b) she has an accounting date in 2017/18 (31.5.17) and that accounting date is 12 months or more since commencement, so BP is 12 months to Accounting Date - see HS222 below.

My intended 2017/18 Box 8 & 9 entries - Accounting Period start/end therefore: 8.4.16 - 31.5.17  (same as 2016/17 return)

HS222 says:

Accounting Period

"If you’re not a new business your accounting period starts on the day after the end of your previous accounting period. For example, if you made your accounts up to 5 April 2017, your new accounting period starts 6 April 2017.” 

No ifs, no buts or reference to accounting periods longer than 12 months.

This would imply that my client’s 2017/18 accounting period start/end entries (Boxes 8 & 9) = 1.6.17 - 31.5.18

Basis Period

"12. Business started in 2016 to 2017

If you started the business during the period 6 April 2016 to 5 April 2017 (Yes), your basis period is[(unless you’ve ceased the business or changed accounting date during 2017 to 2018)] is:

the 12 months to your accounting date, if your accounting date in 2017 to 2018 is 12 months or more after the date on which you started the business (Applies to my client)

the 12 months beginning on the date you started, if your accounting date in 2017 to 2018 is less than 12 months after the date on which you started the business

6 April 2017 to 5 April 2018, if you don’t have an accounting date in 2017 to 2018

If my accounting period dates are correct, Basis Period therefore = 1.6.16 - 31.5.17; if their Accounting Period is correct my client doesn’t have an accounting date in 2017/18, so Basis = 6.4.17 - 5.4.18

SA103f says:

Box 8 Date your books or accounts start – the beginning of your accounting period

The beginning of your accounting period is usually the day after the end of your previous accounting period. For example, if you made your books up to 5 April 2017 last year, the date your books start this year will be 6 April 2017.  (Same as SA222)

[If you’ve been working for yourself for less than 12 months at 5 April 2018, put the date you started trading in box 8.]

Box 9 Date your books or accounts are made up to or the end of your accounting period. It’s usual to make your books up to the same date each year – your end of year or accounting date.

If you started trading between 6 April 2016 and 5 April 2017 [and made your first books up to 5 April 2017, put 05 04 2017 in box 9.]

If you made up your first books for 12 months or longer (to a date after 5 April 2017) (APPLIES TO MY CLIENT), put 05 04 2018 in box 9.    THIS IS DIFFERENT TO SA222.

So we have 3 different Box 9 candidates:  

Me         31.5.17

SA222    31.5.18

SA103F    5.4.18

Who's correct?  Many thanks if you have got this far!

 

Paul

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By Matrix
18th Jan 2019 19:52

31/5/17 but why anyone would have a May year end I don't know.

Thanks (1)
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18th Jan 2019 20:10

someone is over thinking overlap relief when the reality is that it is probably bad practice to have such a delay

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By SXGuy
19th Jan 2019 09:20

Self employed accounts run from the first day upto 5th April each year. I'm unsure why your accounting period needs to end in May. Makes no sense to me at all.

It's not like you can make use of pushing the accounting year on another year. As far as I know, that stopped donkeys years ago.

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By PJ30
to SXGuy
19th Jan 2019 11:40

You seem more confused than me.

Notwithstanding their slight contradiction I can recommend SA22 and SA103f

Thanks (0)
19th Jan 2019 09:55

I'm surprised by some of the comments here.

Overlaps are uncommon these days but there's no need to dismiss them out of hand. Some businesses are seasonal. There are timing advantages to be gained. Profits can be taxed at lower rates. Don't become blinkered.

Not sure why the OP is relying on a Helpsheet that begins "If you're not a new business ...." when he';s dealing with a new business.

Thanks (2)
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By Matrix
to lionofludesch
19th Jan 2019 10:11

Agreed they can sometimes be helpful, for example if a start up had low profits in the first year covered by the personal allowance and taxed twice, then the year end could be changed in a good year to use the overlap.

However in my experience of May year ends, clients are paying tax on profits they made 20 months ago and aren’t very good at putting the money aside or, when the business ceases with little overlap relief, it feels like an extra year of tax due to the delay in putting May profits on a tax return.

Thanks (1)
By PJ30
to Matrix
19th Jan 2019 11:38

Thank you.

I recognise the downside as described in your 2nd para. This particular client was desperate to minimise tax this January...

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to Matrix
19th Jan 2019 12:04

Depends.

Some businesses naturally have reduced profits towards the end of the business's lifetime. A bricklayer, for example. is probably going to gradually reduce his workload as his knees deteriorate. An accountant may wish to tail off his work rather than retire on a set date.

Horses for courses. Overlap relief needs to be managed.

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By PJ30
to lionofludesch
19th Jan 2019 11:36

Thanks. I am very reassured by your main point here re overlap etc. This client desperately needed to pay minimum tax this January (cashflow used for biz investment!) and should be ok next January to pay tax on her more profitable 2017/18 accounts year.

My client is NOT a new business. I submitted 2016/17 return using 8/4/16 - 5/4/17 as basis period.

SA222 does not begin "If you're not a new business..." I extracted from

"2. Accounting periods (period of account)
Your accounting period is the period your accounts cover. If you don’t have accounts, it’s the period your books and records cover.

If you’re a new business, your accounting period starts on the date your business started. If you’re not a new business your accounting period starts on the day after the end of your previous accounting period. For example, if you made your accounts up to 5 April 2017, your new accounting period starts 6 April 2017.

Your accounting date is the last day of your accounting period.

You choose your accounting date. Normally you make your accounts up to the same date each year. If you change your accounting date, special rules apply. You’ll find information on change of accounting date below.

If you’re a new business you may find your tax is easier if you choose 5 April as your accounting date as that is the end of the tax year, or 31 March, 1, 2, 3, or 4 April."

Thanks (0)
to PJ30
19th Jan 2019 12:20

PJ30 wrote:

Thanks. I am very reassured by your main point here re overlap etc. This client desperately needed to pay minimum tax this January (cashflow used for biz investment!) and should be ok next January to pay tax on her more profitable 2017/18 accounts year.

My client is NOT a new business. I submitted 2016/17 return using 8/4/16 - 5/4/17 as basis period.

<

Sorry - ignore the earlier incarnation of this reply.

The business is a new business because 8 April 2016 to 31 May 2017 are the first accounts.

The basis period is the year to 31 May 2017, as you say. You create some overlap relief which represents the 309 days from 1 June 2016 to 31 May 2017.

Thanks (1)
19th Jan 2019 12:56

"6 April 2017 to 5 April 2018, if you don’t have an accounting date in 2017 to 2018

If my accounting period dates are correct, Basis Period therefore = 1.6.16 - 31.5.17; if their Accounting Period is correct my client doesn’t have an accounting date in 2017/18, so Basis = 6.4.17 - 5.4.18"

How do you conclude that your client doesn't have an accounting date in 2017/18 when you say you made up accounts to 31 May 2017 ?

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By PJ30
to lionofludesch
19th Jan 2019 23:55

Because they say, if you’re not a new business, your AP is always 12 months after your last. My last/first AP ended 31/5/17 so next is 31/5/18 which is not in 201718. But Your clarification that although client is doing 2nd SA100/103 it is still a new business so AP end 31/5/17 ok.

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to PJ30
20th Jan 2019 09:39

PJ30 wrote:

Because they say, if you’re not a new business, your AP is always 12 months after your last.

If that were true, you could never change your accounting date.

You seem to be confusing "accounting period" with "basis period". Usually the same, but not always.

Thanks (1)
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21st Jan 2019 13:12

I too am surprised by some of the comments - I won't say why for fear of causing a riot.

As pointed out by Liono' eventually, the business is a "new business" (i.e. in its first or second tax year) for the purpose of the legislation (s.198 - s.216 ish - ITTOIA 2005). The basic principles in legislation aren't that tricky - so if in doubt check the statutes.

Thanks (1)
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to tonycourt
21st Jan 2019 13:25

A riot on accountingweb surely not , why is anyone surprised?

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to tonycourt
21st Jan 2019 13:49

It's not that hard, is it ? Sure, there's been a long first accounting period but there's been no change since then.

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By PJ30
to tonycourt
24th Jan 2019 08:38

As an ex-Collector of Taxes (1970s) I hold my head in shame...

Thanks all

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