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Chapter 09 - Assessable trading income - Coggle Diagram
Chapter 09 - Assessable trading income
Basic periods
Trades are assessed on a current year basis (CYB). For example, if a trader prepares accounts to 31 Dec, they will be taxed in 19/20 on the profit to y/e 31 Dec 2019
Opening year rules
Tax year 1: From commencement to 5/4 following
Tax year 2: Is there an accounting period ending in the 2nd tax year?
Yes
<12 months: Tax first 12 months from commencement
At or over 12 months: Tax 12 months to the accounting date
No
Actual basis (6/4 - 5/4)
Tax year 3: Tax 12 months to accounting date (CYB)
Closing year rules
Penultimate tax year: CYB
Final tax year: Remaining untax profit - overlap profit
Capital allowance for individuals
Basic periods: same as for the period of account, treated as a deductible expense against profit
Opening years
Adjust profits
Calculate CA for each period of account
Deduct: 2 - 1
Apply open/close year rules
Closing years
No WDAs in the final period
Choice of accounting date
31 Mar/05 Apr
More straightforward on commencement
Avoid overlap profit
Easier to deal with on cessation as the final period is less than 12 months
30 Apr
Delay the time when those profits will be taxed
Greatest time to calculate and plan easier
Application of basis period rules more complicated
Amount of profit assessed in year of cessation is high