Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
, see all updates

Computation of liability: basis periods - examples of change of accounting date in year 4 onwards

The following examples show how the basis period rules apply where a change of accounting date occurs in year 4 or later years of trading and the conditions explained at BIM81045 are:

  • met, so that the basis period for the year of change ends with the new accounting date (Examples 1 to 4)
  • not met, so that the change of accounting date is not effective for tax purposes (Examples 5 and 6).

Example 1 - conditions met - short account

A new business starts on 1 July 2007 and prepares accounts to 5 April each year until 5 April 2015. In 2015-2016 accounts are prepared for a (short) period of 3 months from 6 April 2015 to 30 June 2015.

The basis periods are:

2014-2015 Year 7 12 months to 5 April 2015
     
2015-2016 Year 8 12 months to 30 June 2015
2016-2017 Year 9 12 months to 30 June 2016

The change of accounting date occurs in 2015-2016. As the new accounting date is less than 12 months after the basis period for the previous year, the basis period for 2015-2016 is 12 months ending with the new accounting date (30 June 2015), see BIM81045.

The 9 month period from 1 July 2014 to 5 April 2015 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.

Example 2 - conditions met - long account

A new business starts on 1 July 2007 and prepares accounts to 30 June each year until 30 June 2014. In 2015-2016 accounts are prepared for a period of 18 months from 1 July 2014 to 31 December 2015.

The basis periods are:

2014-2015 Year 7 12 months to 30 June 2014
     
2015-2016 Year 8 18 months to 31 December 2015
2016-2017 Year 9 12 months to 31 December 2016

The change of accounting date occurs in 2015-2016. As the new accounting date is more than 12 months after the basis period for the previous year, the basis period for 2015-2016 is the 18 month period ending with the new accounting date (31 December 2015), see BIM81045.

As the basis period for 2015-2016 is longer than 12 months (by 6 months), overlap relief for 6 months worth of overlap profits from earlier years can be given in 2015-2016, see BIM81075 - BIM81090.

Example 3 - conditions met - long account - no accounting date in year of change

A new business starts on 1 July 2007 and prepares accounts to 5 April each year until 5 April 2015. In 2015-2016 accounts are prepared for a period of 15 months from 6 April 2015 to 30 June 2016.

The basis periods are:

2014-2015 Year 7 12 months to 5 April 2015
     
2015-2016 Year 8 12 months to 30 June 2015
2016-2017 Year 9 12 months to 30 June 2016

The change of accounting date occurs in 2015-2016. This is the first year in which accounts are not made up to the old date of 5 April, see BIM81035.

As 30 June 2015 is less than 12 months after the basis period for the previous year, the basis period for 2015-2016 is the 12 months ending on the new accounting date (30 June) in that year, see BIM81045.

The 9 month period from 1 July 2014 to 5 April 2015 is an overlap period. The profits for this overlap period will qualify for overlap relief in a later year, see BIM81075.

Example 4 - conditions met - two accounts used to satisfy 18 month test

A business prepares accounts to 30 June each year until 30 June 2014. The trader wishes to change his accounting date to 5 April.

If the first accounts to the new date were prepared for the 21 months from 1 July 2014 to 5 April 2016 the 18 month test would not be satisfied, see Example 5 and BIM81045. To avoid this, the trader prepares accounts for 12 months to 30 June 2015 and for 9 months to 5 April 2016.

The basis periods are:

2014-2015 Year 7 12 months to 30 June 2014
     
2015-2016 Year 8 21 months from 1 July 2014 to 5 April 2016
2016-2017 Year 9 12 months to 5 April 2017

The change of accounting date occurs in 2015-2016. The accounting date for 2015-2016 is 5 April. Where accounts are drawn up to 2 or more dates in a tax year, the latest of them is the accounting date for that year, see BIM81010.

As the new accounting date for 2015-2016 is more than 12 months after the basis period for the previous year, the basis period for 2015-2016 is the 21 month period ending with the new accounting date (5 April 2016), see BIM81045.

As the basis period for 2015-2016 is longer than 12 months (by 9 months), overlap relief for 9 months worth of overlap profits from earlier years can be given in 2015-2016, see BIM81075 - BIM81090.

Example 5 - conditions not met - long account fails 18 month test

Accounts are made up to 30 June each year until 30 June 2014 when the trader decides to change the accounting date to 5 April. The next accounts are drawn up for the period of 21 months from 1 July 2014 to 5 April 2016.

The 18 month test is not satisfied, see BIM81045. There is no change of accounting date for tax purposes in 2015-2016.

The basis periods are:

2014-2015 Year 7 12 months to 30 June 2014
     
2015-2016 Year 8 12 months to 30 June 2015

Guidance on the consequences for the year after an ineffective change of accounting date is at BIM81055.

In this case a change of accounting date in 2016-2017 will be effective. The accounts to the new date in 2016-2017 will be for the 12 months to 5 April 2017, which satisfies the 18 months test.

The basis period for 2016-2017 will therefore be:

2016-2017 Year 9 21 months from 1 July 2015 to 5 April 2017
     

Example 6 - conditions not met - long account fails 18 month test and straddles a complete tax year

Accounts are made up to 30 June each year until 30 June 2014. A single 22 month account is then prepared for the period from 1 July 2014 to 30 April 2016. This account straddles 2015-2016 and ends in 2016-2017.

The 18 month test is not satisfied, see BIM81045. There is no change of accounting date in either 2015-2016 or 2016-2017 for tax purposes.

The basis periods are:

2014-2015 Year 7 12 months to 30 June 2014
     
2015-2016 Year 8 12 months to 30 June 2015
2016-2017 Year 9 12 months to 30 June 2016

Guidance on the consequences for the year after an ineffective change of accounting date is at BIM81055.

In this case a change of accounting date in 2017-2018 will be effective. The accounts prepared to the new date in 2017-2018 are for the 12 months to 30 April 2017, which satisfies the 18 months test.

The basis period for 2017-2018 will therefore be:

2017-2018 Year 10 12 months to 30 April 2017