BIM81060 - 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 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:
| Year | - | - |
|---|---|---|
| 2017-2018 | Year 10 | 12 months to 30 April 2017 |