Computation of liability: basis periods - year of cessation
S202 Income (Trading and Other Income) Act 2005
The basis period for the tax year in which a person permanently ceases to carry on a trade:
- begins immediately after the end of the basis period for the previous tax year, and
- ends on the date of cessation.
If the business commences and ceases in the same tax year the basis period for that year begins and ends on those dates.
A new trade commences on 1 July 2010. Accounts are prepared for a 6 month period to 31 December 2010, and to 31 December in 2011 and 2012. The trade ceases on 30 April 2013 and a 4 month account is prepared to this date.
The basis periods are:
|2010-2011||Year 1||1 July 2010 to 5 April 2011|
|2011-2012||Year 2||12 months to 31 December 2011|
|2012-2013||Year 3||12 months to 31 December 2012|
|2013-2014||Final year||1 January 2013 to 30 April 2013|
Change of accounting date in year before cessation
It is quite common for the final period of account of a business to be for a period other than 12 months (for example, the normal 12 month period of account plus a short period to the date on which the business ceased). In such cases the accounts will have been made up to a date which is not the annual accounting date, but without any intention that this ‘new date’ should be used as a new accounting date.
These circumstances do not have to be dealt with as a change of accounting date if the taxpayer chooses not to make a notification of a change of accounting date on their SA return, see BIM81045.
A new trade starts on 1 July 2012 and accounts are prepared to 31 December 2012 and 31 December 2013. The business ceases on 30 April 2015 and a 16 month account is prepared to this date.
The basis periods are:
|2012-2013||Year 1||1 July 2012 to 5 April 2013|
|2013-2014||Year 2||1 January 2013 to 31 December 2013|
|2014-2015||Year 3||1 January 2014 to 31 December 2014|
|2015-2016||Final year||1 January 2015 to 30 April 2015|
As there was no intention to change the accounting date in 2014-2015, the trader makes no notification in their 2014-2015 SA return, see BIM81045. The basis period for 2014-2015 remains the 12 months to the ‘old’ accounting date of 31 December 2014.