Chapter 5 - Current Year Basis & Opening Year Rules

Question 1

Period of Account

Answer 1

Period of account is also known as the accounting period. Accounts are made up to a year end.

Question 2

Current Year Basis

Answer 2

Under the current year basis, the profits of the 12 month period ending in the tax year are taxed ie Dec 31 2018 year end = 2018/19 taxable profits

Question 3

Commencement of Trade

Answer 3

A trade actually commences when the main activity starts. In determining when somebody starts, we look at the main activity.

Question 4

First Tax Year

Answer 4

For the first tax year in which someone is trading, the basis period is the profits from the date the trade started until the 5th of April (end of the tax year)

Question 5

Second Tax Year

Answer 5

Second is more complicated. First check if there is an accounting period ending in the second tax year.

Question 6

Second Tax Year - Accounting Period Ending in Tax Year

Answer 6

If there is an AP ending in the tax year, we then ask how long the period is. If it’s 12 months or more, we tax the profits from the 12 months leading up to that accounting date.
If it’s less than 12 months, we tax the profits from the first 12 months of trading.

Question 7

Second Tax Year - No AP Ending in Tax Year

Answer 7

If there isn’t an AP ending in the tax year, the basis period is the actual tax year ie from 6 April to the following 5 April

Question 8

Apportioning

Answer 8

Under current year basis rules, we must tax 12 months of profit, no more or less. If the AP is longer than 12 months, we take the last 12 months leading up to the end of the AP. If it’s a short AP, we tax the first 12 months of trading.

Question 9

Useful Tip

Answer 9

Draw timelines when asked about basis periods

Question 10

Third Tax Year

Answer 10

By the third year, we are usually using CYB. However, if the second year doesn’t have an AP end, we tax the profits of the 12 months to the accounting date in the third year