Accounting Period (UK Taxation) Essentials

In the UK, a trading business's accounting period is the period for which it prepares accounts. It's usually 12 months, but can be a shorter or longer period.

The accounting period starts on the date the business begins trading, which is also known as the commencement date. This is typically when the business starts to make sales and incur expenses.

A business's accounting period can be changed, but only by HMRC's permission. This is usually done when the business has changed its trading activities or has a specific reason for changing its accounting period.

The end of the accounting period is the date when the business's accounts are prepared and submitted to HMRC.

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The UK tax and calendar years don't run simultaneously, making it essential to know the key tax dates to avoid any issues when filing taxes.

In the UK, the tax year runs from April 6th to April 5th the following year, while the calendar year runs from January 1st to December 31st. This means that a business's accounting period may overlap with the previous or next tax year.

For example, if a business produces accounts to 5 April 2011, it will have an overlap period with the previous tax year, which can lead to double taxation of profits. This is known as the overlap period, and the amount taxed twice is called the overlap profit.

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In the UK, some companies draw up financial statements to the same day of the week each year, which can result in accounting periods of 364 or 371 days.

This method allows them to deem their accounts as being drawn up for a 12-month period, as long as they're within four days of a mean accounting date each year.

For example, if there's a 371-day period of account, the company will prepare its return assuming the period was 365 days long.

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In the UK, the tax and calendar years don't run simultaneously, so it's essential to keep track of key tax dates.

Businesses have flexibility in choosing their accounting year-end, but it's crucial to be aware of the overlap rules that can affect small businesses.

The overlap period refers to the time between the start of trading and the end of the first tax year, which can result in taxable profits being taxed twice.

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For James, who started his business on 1 August 2010 and produces accounts to 5 April 2011, the overlap period is not an issue, as his first tax year ends on 5 April 2011.

However, for Matthew, who started his business on 1 August 2010 and produces accounts to 31 July 2011, the overlap period is a concern, as he has to pay tax on profits he hasn't yet made.

Matthew's overlap profit is £9,512, which is the amount that has been taxed twice. This can be deducted from his taxable profit figure for his last year of trading, but it may be many years before he can claim it.

Businesses can change their accounting year-end during the life of their business to lessen the effect of the overlap rules, but they must notify HMRC in writing.

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A limited company's accounting period is a crucial aspect of UK taxation. It begins when the company comes within the charge to corporation tax, which usually happens when it first acquires a source of income or commences business in the UK.

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The accounting period can end in various ways, including the expiration of 12 months from its beginning, an accounting date of the company, or the company ceasing to trade or be within the charge to corporation tax.

Here are the key events that can trigger the end of an accounting period:

A UK-resident company is treated as coming within the charge to corporation tax when it commences to carry on business.

Cooperatives preparing quarterly and half-yearly accounts are allowed to merge a number of periods of account for tax purposes so that they have only one accounting date each year. This is a great way to simplify their financial reporting.

HMRC will allow this under certain conditions, so cooperatives should check their eligibility before making any changes.

Cooperatives that prepare quarterly and half-yearly accounts can merge their periods to have only one accounting date each year, which can help simplify their financial reporting.

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A limited company is a type of organisation where the assets and income of the owners are separate from the company's assets and income. This means that the owners' personal finances are not directly affected by the company's financial performance.

If you have a limited company, you'll need to file annual accounts with Companies House and pay Corporation Tax on your profits. Corporation Tax is currently set at 19%.

The accounting period for a limited company begins when it first acquires a source of income, such as when it starts trading. This can also happen if the company becomes UK resident or starts trading in the UK through a UK permanent establishment.

An accounting period ends on the earliest of several dates, including the expiration of 12 months from the beginning of the accounting period, or when the company ceases to trade or be within the charge to corporation tax.

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The financial year of a limited company usually coincides with the accounting period for corporation tax, and begins on the day the company commenced business, as stated in the registration at Companies House.

Here are the key dates to remember for the end of an accounting period:

A multi-trade company is a bit more complex when it comes to accounting. If a company operates more than one trade, it can choose which date to use for accounting purposes.

This flexibility is allowed as long as the company doesn't make up general accounts for all its activities.

The company can pick any date it likes, but HMRC has the final say if they think the chosen date is not suitable.

If a company is in the business of leasing plant or machinery, it's subject to corporation tax for that business.

This company will have a special rule for its accounting period if there's a qualifying change of ownership.

A qualifying change of ownership can end an accounting period and start a new one.

The day of the qualifying change marks the end of the old accounting period, and the next day begins a new one.

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A limited company's rates can be complex, but understanding the basics is key to making informed decisions. The Corporation Tax rate for small profits rate is 19% and the main rate is 25%.

You'll need to consider the rate of Corporation Tax your company will pay. This depends on the company's profits. For example, if your company's profits are below £50,000, you'll pay the small profits rate of 19%.

The VAT rate for limited companies is the same as for sole traders and partnerships, which is 20% for standard rate supplies. However, some supplies are exempt from VAT, such as financial services.

The PAYE rate for employees is based on the employee's income tax band. This can be 20%, 40%, or 45% depending on the employee's income. For example, if an employee earns £50,000, they'll pay 40% income tax.

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A winding up of a company is a significant event that affects its accounting period. This occurs when a resolution for winding up is passed, a winding up petition is presented, or another act is done for a similar purpose.

The accounting period doesn't end until 12 months from its beginning or the completion of the winding up, unless the company enters administration. In that case, the rule is disapplied.

During a winding up, a company may estimate when it will be wound up to prepare tax returns. If the assumed date turns out to be before the actual winding up, a new accounting period starts from that date.

Tax calculation in the UK is based on the accounting period, which can be a calendar year, a 12-month period, or a shorter period of up to 12 months.

The accounting period must be consistent from one year to the next, unless there are reasonable grounds for a change. This is to ensure that tax calculations are accurate and straightforward.

The tax year, which runs from April 6th to April 5th, may not align with the accounting period. This can result in a tax calculation that includes a partial year's profits, which can be a complex calculation.

Tax relief is available for certain business expenses, such as capital allowances for assets like machinery and equipment. These expenses can be deducted from taxable profits to reduce the amount of tax owed.

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Overlap Relief can be a huge relief for taxpayers, especially those with multiple income streams.

If you have income from both a job and self-employment, you can claim relief on your self-employment income against your tax liability from your job.

This can significantly reduce your tax bill, but only if you're eligible and claim it correctly.

The overlap relief is calculated by subtracting the tax on your employment income from the tax on your total income, including self-employment income.

The result is the amount of tax you've overpaid on your employment income, which can be claimed back as relief.

For example, if your self-employment income is £10,000 and you've paid £2,000 in tax on it, but you've also paid £1,500 in tax on your employment income, you can claim £500 in overlap relief.

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Loss relief is a crucial aspect of tax calculation and relief.

In the UK, detailed rules apply to how different types of losses are set off within a company's computations.

You can find a comprehensive explanation of these rules in the United Kingdom corporation tax loss relief.

Group relief is a form of loss relief that allows a company to surrender its losses to a group member with sufficient taxable profits.

This is particularly useful for companies that have losses in excess of their other taxable profits for the period.

However, there are exceptions, such as companies in the oil and gas extraction industry, which may not accept group relief against their oil and gas extraction business profits.

Full group relief is permitted between companies that are in the same 75% group, where companies have a common ultimate parent, and at least 75% of the shares in each company are owned by other companies in the group.

Consortium relief is also permitted, where a company is owned by a consortium of companies that each own at least 5% of the shares and together own at least 75% of the shares.

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Partial deeming provisions can be complex, but they're essential for tax calculation and relief.

New legislation can introduce partial deeming provisions, which deem a company to have an accounting period for specific purposes only.

These provisions are often used to calculate management expenses that companies are entitled to under different rules.

Companies may need to deem themselves to have an accounting period ending on a specific date, such as 31 March 2004, for tax purposes.

This was the case when section 75 of the Income and Corporation Taxes Act 1988 was replaced by the Finance Act 2004.

In the UK, the corporation tax rate varied between 0% and 19% for companies with profits under £50,000. This was the case in 2000 when the small companies' rate was 19%.

A 10% starting rate for profits from £0 to £10,000 was introduced by Chancellor Gordon Brown's 1999 Budget, effective from April 2000. This rate was later cut to zero in the 2002 Budget.

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Companies with profits between £10,000 and £50,000 paid a rate between the starting rate and the small companies' rate, which was 19% in 2000. This is known as marginal relief.

The number of new companies being formed in 2002-2003 reached 325,900, an increase of 45% on 2001-2002, largely due to the 0% corporation tax rate on income up to £10,000.

Corporation tax is levied on the net profits of a company, and it's borne by the company as a direct tax, except for certain life assurance companies.

Companies were previously required to report certain details to HMRC so that the right amount could be assessed, but this changed in 1999 with the introduction of self-assessment. Self-assessment means that companies are required to assess themselves and take full responsibility for that assessment.

If a company fails to submit a tax return by 12 months after the end of the period of account, it is liable to penalties, and HMRC may issue a determination of the tax payable, which cannot be appealed.

Here are the different Schedules under the source rule in the UK:

In the UK, corporation tax is levied on a company's net profits. Companies are directly responsible for paying this tax, except for certain life assurance companies.

Before 1999, companies didn't have to pay corporation tax unless HMRC raised an assessment. This changed with the introduction of self-assessment in 1999.

Self-assessment means that companies must assess their own tax liability and take responsibility for it. If the self-assessment is wrong due to negligence or recklessness, the company can face penalties.

The self-assessment tax return must be submitted to HMRC 12 months after the end of the accounting period. If a company misses this deadline, it's liable to penalties and may also miss out on making certain claims and elections.

HMRC may issue a determination of the tax payable if a company fails to submit a return. However, they usually wait six months before doing so, giving companies some extra time to get their affairs in order.

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The schedular system is a way of organizing and taxing different types of income in the UK. It's a complex system, but let's break it down.

In the UK, the source rule applies, which means that profits are only taxed if they fall within one of the specified Schedules.

There are several Schedules that cover different types of income, including Schedule A, which deals with income from UK land, and Schedule D, which covers taxable income not falling within another Schedule.

Here's a breakdown of the different Schedules and their scopes:

In practice, companies don't get taxed under Schedule F, and most companies are exempted from it.

HMRC has one year from the normal filing date to open an enquiry into a company's return, which is itself one year after the end of the period of account.

If a company feels there's undue delay in an enquiry, it can appeal to the Commissioners of Income Tax to close it.

Decisions of fact made during an enquiry are binding, and can only be appealed if no reasonable Commissioner could have made that decision.

Once an enquiry is closed, HMRC can only re-open a prior year if they become aware of an issue they couldn't reasonably have known about at the time, or in cases of fraud or negligence.

In fraud or negligence cases, HMRC can re-open cases from up to 20 years ago.

After an HMRC enquiry closes, a taxpayer has 30 days to amend their return and make additional claims and elections before the assessment becomes final and conclusive.

If there's no enquiry, the assessment becomes final and conclusive once the period in which HMRC may open an enquiry passes.

If you have to borrow money due to tax on overlap profits, you can claim tax relief on loan interest against future tax bills. This can be a useful option to consider.

You can choose any date for your business year-end, but this can have a drawback. In the first two years of trading, your business will pay tax twice on the same profits.

Choosing a fiscal year is the most popular choice, but you can select any date you like. However, be aware that this can lead to paying tax twice on the same profits in the first two years of trading.

Here are some key points to consider when choosing a business year-end:

An accounting period begins when a company comes within the charge to corporation tax, which typically happens when it first acquires a source of income or commences business in the UK.

Overseas companies usually come within the charge if they become UK resident or start trading in the UK through a UK permanent establishment.

An accounting period can end in various ways, and it's essential to understand these triggers to ensure accurate tax compliance.

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An accounting period ends on the earliest of the following: the expiration of 12 months from the beginning of the accounting period, an accounting date of the company, or the company beginning or ceasing to trade.

A UK-resident company is treated as coming within the charge to corporation tax when it commences to carry on business.

Here are the key triggers that mark the end of an accounting period: