CH 7 - Transition to tax year basis

Question 1

List out steps to calculate the assessable profits

Answer 1

Step 1: Calculate the profits/losses attributable to the standard part of the basis period.

Step 2: Calculate the profits/losses attributable to the transition part of the basis period.

Step 3: Deduct any overlap profits from the result of step 2.

Step 4: Add up the results of Step 1 and Step 3.

If the results of either or both of Steps 3 and 4 are nil or a loss, the amount from Step 4 is the total profit/loss for 2023/24.
If this is not the case proceed to Step 5.

Step 5: The transition profits are the lower of step 3 and step 4. These are the profits which are spread over the five year period.

Step 6: If the amount at step 1 is nil or a loss, the profit of 2023/24 is the appropriate amount of the transition profits.

If the amount at step 1 is a profit, the profit for 2023/24 is the amount at step 1 plus the appropriate amount of the transition profits.

Question 2

What are transition rulles for
continuing business

Answer 2

the basis period for 2023/24 is the period beginning immediately
after the end of the basis period for 2022/23 and ending on 5 April 2024.

Question 3

How is pread transition profits
& on cessation within the spread

Answer 3

The transition profits will be spread over a 5 year period commencing with 2023/24 at a rate of 20% of the transition profits each year.

On cessation within 5 year, the transition profits are treated as arising in the year of cessation.

Question 4

What else can be done with the tranisition profits?

an election

Answer 4

The trader may elect for an additional amount of transition profits to be taxed in a tax year.

The election must be made on or before the first anniversary of the filing date for the tax year to which it relates.

(For example, an election in respect of 2023/24 must be made by 31 January 2026.)

Question 5

When transition profits are taken into account & when not

Answer 5

are taken into account when:
* for personal allowance
* for relevant earnings for pension purposes

NOT taken into account when;
* calc. high income child benefit charge
* working out pension annual allowance