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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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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:

  1. begins immediately after the end of the basis period for the previous tax year, and
  2. 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.

Example 1

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.

Example 2

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.