Time Apportioning Expenses over first two Corp Tax Accounting Periods

CT time apportionment

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I have a company with a sole director.  The first accounting period runs from 15th August 2015 to 31st August 2016.   The first CT period is from 16th Aug 2015 to 15 August 2015 and the second CT period is from 16th 2016 to 31st August 2016.

While the vast majority of the income and expenditure has occured in a similar manner on a month by month basis there is a large one-off item,  a payment by the company into a pension scheme of £30k which is occuring on or around 20th August 2016.  

While there is profit to absorb it my question is whether, for CT purposes, this expenditure can be time apportioned like all other income and expenditure for the entire first accounting period from 16th Aug 2015 to 31st Aug 2016?   If it could not, then the profit in the CT period 16th Aug 2016 to 31st Aug 2016 certainly could not absorb this expenditure. 

Replies (28)

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Replying to fawltybasil2575:
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By Melanie1
30th Jul 2016 21:13

Yes, your illustration and explanation clearly illustrate the point and specifically answer the question. Thank you Basil.

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Replying to fawltybasil2575:
By Ruddles
31st Jul 2016 13:16

I disagree with the MUST. Profits can be apportioned on a transaction basis if that gives a more accurate result. It probably isn't appropriate in this case but the point is that profits do not always have to be apportioned on a time basis.

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Replying to Ruddles:
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By lionofludesch
31st Jul 2016 17:05

No, you're wrong there. If you want to go on a transaction basis, you need to prepare accounts for twelve months and another set for the remaining few days.

If you choose to do one period, it's time apportionment only.

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Replying to lionofludesch:
By Ruddles
31st Jul 2016 18:46

CTM01405

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By lionofludesch
31st Jul 2016 11:07

Dunno why you want to treat one single transaction differently to all the others, Melanie.

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Replying to lionofludesch:
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By Melanie1
01st Aug 2016 00:35

lionofludesch wrote:

Dunno why you want to treat one single transaction differently to all the others, Melanie.


I did not want to but wondered whether there was any restriction on time apportioning or any obligation to treat the item on a transactional basis due to its size/tax impact.
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Replying to fawltybasil2575:
By Ruddles
01st Aug 2016 08:25

Basil - please comment on CTM01405

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Replying to Ruddles:
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By lionofludesch
01st Aug 2016 09:20

I think you're struggling to say that Melanie's case would give a fairer result if transactions were allocated.

This is no Marshall Hus and Partners with their handful of transactions in five years.

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Replying to lionofludesch:
By Ruddles
01st Aug 2016 12:28

I never said that, Lion (see my previous comment - "It probably isn't appropriate in this case").

I was merely reacting to the suggestion that there is no alternative to time-apportionment. In appropriate circumstances there clearly is. (I have recent experience involving a handful of transactions in 16 months where transaction allocation gave a fairer result.)

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Replying to Ruddles:
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By lionofludesch
01st Aug 2016 14:11

Well done - but I still think HMRC were wrong to allow it.

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Replying to fawltybasil2575:
By Ruddles
01st Aug 2016 14:38

Piffle. Stop trying to wriggle out of it, Basil - you left yourself no wriggle room. Your initial post was an unqualified statement, written in general terms (ie no particular reference to the OP's case and no reference to statute) that time-apportionment is the ONLY basis for a long period.

I agree that, on paper (as far as legislation is concerned) time-apportionment is the only acceptable basis. However, back in the real world, so long as HMRC say they will accept transaction-based apportionment, there remains an alternative, albeit available only rarely (we still don't have enough info to decide whether in fact HMRC would accept that basis in the OP's case so I don't agree that you can say with 100% confidence that they would not).

As far as my own client is concerned, I take no credit - it took no effort at all, merely a reference to the HMRC's guidance in the tax computation. Of course, I don't know whether HMRC bothered to read it so their 'acceptance' is not conclusive but I'm not inclined to go back and force the issue.

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Replying to Ruddles:
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By lionofludesch
01st Aug 2016 17:46

Ruddles wrote:

Piffle. Stop trying to wriggle out of it, Basil - you left yourself no wriggle room. Your initial post was an unqualified statement, written in general terms (ie no particular reference to the OP's case and no reference to statute) that time-apportionment is the ONLY basis for a long period.

I'm outraged that anyone should address Basil in such a tone.

If it were Portia - that would have been fair enough, obviously.

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Replying to lionofludesch:
Portia profile image
By Portia Nina Levin
01st Aug 2016 18:08

lionofludesch wrote:

If it were Portia - that would have been fair enough, obviously.

Please clarify your ambiguity!

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Portia profile image
By Portia Nina Levin
01st Aug 2016 13:15

I agree with Basil, and I think that CTM01405, relying as it does on a case from 1980, is HMRC rubbish. As Basil notes CTA 2009, section 52(3) uses the word must, and should also be read in the context of CTA 2010, section 1172.

The fact that BKD has recent experience of haiving either gone unchallenged, or having hoist HMRC by its own petard, does not alter what the current statutes say.

It is worth pointing out that the case referred to in CTM01405 preceded the enactment of ICTA 1988, and was found the way that it was based on the silence in ICTA 1970, section 129(2) (not being followed by a provision corresponding with section 127(2), as applied for income tax purposes), on the basis of apportionment for corporation tax purposes. That silence was removed when ICTA 1988 was subsequently enacted and ICTA 1988, section 72(2) provided an express (time) basis for the apportionment. Presumably it did not suit HMRC to update its manuals.

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Replying to Portia Nina Levin:
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By lionofludesch
01st Aug 2016 14:10

Portia Nina Levin wrote:

I agree with Basil, and I think that CTM01405, relying as it does on a case from 1980, is HMRC rubbish. As Basil notes CTA 2009, section 52(3) uses the word must, and should also be read in the context of CTA 2010, section 1172.

Worth pointing out too that CT rates were very different in those days and Marshall Hus sought to spread profits over five years, consequently reducing the tax. We're unlikely to see a five year accounting period in the future. A lot has changed since 1980.

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Replying to lionofludesch:
By Ruddles
01st Aug 2016 14:27

None of the above matters. HMRC may be wrong with their guidance (as they frequently are, and I am very well aware that it has no legal authority). The salient point is that HMRC are happy to accept (and to put that in writing) that an alternative basis of apportionment is appropriate in certain (and I accept very limited) circumstances. Until such time that they change their mind and withdraw their guidance I couldn't give a jot that it is at odds with the legislation.

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By Adrian T
01st Aug 2016 15:02

I agree with the argument that the transactional basis cannot simply be invoked, but not because of the word "must" in s52(3):

s52(2) states that "Any of the following steps may be taken if they are necessary to arrive at the profits... of the accounting period" referring to the apportionment (or summation of shorter periods).

s52(3) then states that "The steps must be taken by reference to the number of days in the periods concerned", not that the steps must be taken.

PNL's reference to s1172 CTA 2010 seems to hit the spot, though (as usual).

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Replying to Adrian T:
By Ruddles
01st Aug 2016 15:18

Portia makes a valid point indeed but she and you both miss mine. Despite what the legislation says, and as wrong as HMRC may be, if they say that they will accept an alternative basis then why not use it if it is to your client's benefit and the limited circumstances for its use exist?

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Replying to Ruddles:
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By Portia Nina Levin
01st Aug 2016 15:30

Which they do not in relation to the OP.

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Replying to Portia Nina Levin:
By Ruddles
01st Aug 2016 15:48

How do you know - have you examined the OP's working papers and client records?

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Replying to Ruddles:
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By Portia Nina Levin
01st Aug 2016 16:08

No. There is sufficient information in the OP to make that deduction.

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Replying to Portia Nina Levin:
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By lionofludesch
01st Aug 2016 16:36

Indeed there is. The OP clearly says she wishes to time apportion .

It would be a rare occurrence where one did not. It is advantageous, more often than not, to smooth the profits between the periods involved.

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Replying to lionofludesch:
By Ruddles
01st Aug 2016 16:53

Rare indeed - I have come across only one such occurrence. But 'rare' (or 'more often than not') does not mean 'never' (or 'always').

As a side issue, the OP's concerns are unfounded. Even if the profits were not time-apportioned then (making the bold assumption that we're talking about trade activity) the loss created in the stub period by the large item of expenditure could be carried back to the previous period - end result being exactly the same whichever way you slice it.

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Replying to Ruddles:
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By lionofludesch
01st Aug 2016 17:39

Could it ? Or against a period of the same length.

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Replying to lionofludesch:
By Ruddles
01st Aug 2016 18:29

Yes it could - no restriction to period of the same length. So there.

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Replying to fawltybasil2575:
By Ruddles
01st Aug 2016 15:47

More nonsense. The substantive issue is that you said that apportionment can ONLY be made on a time basis, whereas HMRC say (in error or not) that they will accept another basis - provide the circumstances fit. If you had taken the care to say that the legisaltion requires time-apportionment then we would not be having this discussion (though I would still have directed the OP to the (remote) possibility of using another method.

As far as my own position is concerned, having both advised my client accordingly and made full disclosure to HMRC I'm perfectly comfortable that no offence has been committed.

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Replying to fawltybasil2575:
By Ruddles
01st Aug 2016 19:41

b*llocks. You have not, at the outset, indicated any specific legislation and indeed there is nothing, implicit or explicit, in your first post that even hints that you are referring to the legislation and to the legislation alone.

What on earth makes you think that I was commenting on the legislation? How thick can you get? It is clear throughout that my reference to an alternative basis is a reference to HMRC's approach, however misguided that approach may be.

I'd stop digging now if I were you.

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Replying to fawltybasil2575:
By Ruddles
01st Aug 2016 22:26

More b*llocks - the only thing implicit (go and check the meaning of the word) in your posts is that you're not man enough to admit when you're in the wrong.

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