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Trading allowance query

Is this right for short period which straddles tax year?

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Hi everyone,

Encountered something that I have not come across before.

Client started trading on 1 March 2019 but as the business was not as successful as they'd have liked it to have been, they ceased on 31 May 2019. Turnover for the period was £3,000.

I know that the trading allowance is not pro-rated for short accounting periods and was going to just enter a 3 month period on my software. However if the client was to split the period into 1 month trading to 5 April 2019 and a short cessation period thereafter (i.e. two set of 'accounts'), the software will allow her to cliam two trading allowances, rather than one pro-rated allowance.

Is this correct? If so it seems like a no brainer to me.

Thanks for your answers in advance.

Replies (11)

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By Tax Dragon
16th Jul 2019 15:01

Your software is rubbish. It shouldn't make any difference whether you have one set of accounts or two.

Thanks (1)
Replying to Tax Dragon:
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By We're_all_mad_here
16th Jul 2019 15:10

IRIS!

It pro-rates the £1,000 as if it were a trading expense if you leave it as a 3 month set of accounts. If you split it into two then you can claim the trading allowance in each tax year!

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Replying to Jholm:
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By We're_all_mad_here
16th Jul 2019 15:32

Thanks,

I had the point re shorter period clear in my head it was just the IRIS issue that confused me.

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Replying to We're_all_mad_here:
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By Tax Dragon
16th Jul 2019 15:36

We're_all_mad_here wrote:

...it was just the IRIS issue that confused me.

Don't rely on software for knowledge of tax rules!

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Replying to Tax Dragon:
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By We're_all_mad_here
16th Jul 2019 15:40

I didn't otherwise I would have just run the return!

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Replying to We're_all_mad_here:
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By Tax Dragon
16th Jul 2019 15:45

Excellent - correct attitude.

If it's a tax return though I'm confused, as your basis period for 2018/19 is actual. (As, indeed, will 2019/20 be.)

So I'm not quite sure what you are doing.

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Replying to Tax Dragon:
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By We're_all_mad_here
16th Jul 2019 15:53

IRIS allows me to either have an 1/3/19 to 31/5/19 accounting period or two periods of 1/3/19 to 5/4/19 and 6/4/19 to 31/5/19.

The first option (using IRIS) prorates the total income for the 3 months and one £1,000 trading allowance. The second option allows me to specify the income for the respective periods and claim a trading allowance in each period (i.e. tax year).

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Replying to We're_all_mad_here:
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By Tax Dragon
16th Jul 2019 15:59

Can you tell I don't use IRIS?

All software I have ever seen allows you to enter basis periods (as well as accounts periods). Does IRIS not? How on earth does that work? (Ah, I guess it doesn't! Hence the problem!)

Thanks (1)
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By Jholm
16th Jul 2019 15:09

£1k allowance per tax year.

One of the ideas behind it was to eliminate the need for self assessment for people that take short periods of trading (eg. summer job).

The fact you have 'drawn accounts' to a non-tax year date is irrelevant for the purposes of this allowance.

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RLI
By lionofludesch
16th Jul 2019 17:39

Not sure why you'd choose to have a period straddling the tax year end if you're claiming trading allowance.

Does time apportionment work out better than actual sales?

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