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HMRC internal manual

Business Income Manual

Computation of liability: previous year basis - 1996-1997 transitional rules

Where a trade commenced before 6 April 1994 there were transitional rules for the tax year 1996-1997 to bring the business on to the current year basis.

General transitional rule for 1996-1997

The general rule was that the transitional basis period for 1996-1997 was the aggregate of two separate periods:

  • a ‘notional current year (CY) basis period’ for the year - this was the 12 months to the date to which accounts were made up in 1996-1997 (or the 12 months to 5 April 1997 if no accounting date fell in 1996-1997); and
  • the ‘relevant period’ - this was the period beginning immediately after the end of the basis period for 1995-1996 and ending immediately before the beginning of the ‘notional CY basis period’ given above.

The profit assessed for 1996-1997 was the ‘appropriate percentage’ of the profits of this transitional basis period. This percentage is derived from the fraction 365/n or 12/n where ‘n’ is the total number of days or months respectively in the transitional basis period.


Accounts made up to 30 June for many years. Basis periods were:

1995-1996 (PY) - 12 months to 30 June 1994

1996-1997 (Transitional year) - 24 months to 30 June 1996 (12 months to 30 June 1995 + 12 months to 30 June 1996) - profits assessed were 365/731 or 12/24 (50%) of the profits for this basis period

1997-1998 (CY) - 12 months to 30 June 1997.

This averaging process in the transitional rules for 1996-1997 allowed some profits to escape tax in the transition to the current year basis.

Transitional rules - treatment of losses

Losses were aggregated with profits in computing the profits of either the ‘notional CY basis period’ or the ‘relevant period’. But an overall loss in one of these periods was not aggregated with a profit in the other. An overall loss incurred in one of the periods was treated as ‘nil’ when aggregating the two periods.

Treating losses as ‘nil’ left the loss incurred available for use as loss relief.