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Post Info TOPIC: Accounting year


Master Book-keeper

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Accounting year


For self employed clients I usually do their year from 1st April - 31st March unless they are subbies, but for one client I have tended to do year 6th April - 5th April, primarily because there are pensions, savings and share divi's and it just seemed easier at the time.

However is there any reason why I couldn't shorten that to 31st March next year and run 1st April - 31st March for his FHL, continuing thereafter.  He received the SBRR grant on the 3rd April and it would make make more sense to include that in the 20-21 tax year rather than the 19-20 one.



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John 

 

 

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Master Book-keeper

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Hi John
I would hang fire. Coit have raised this issue (very recently) and Im sure Ive seen that ICAEW have too (but cnanot seem to put my finger on their guidance - I need a bloody good read up/sort out of my favourites, they are now more like the 8 lane car crash of Los Angeles (ie worse than the car crash that is the M6!)

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 Joanne  

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position (and by that I dont mean with HMRC)



Guru

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Agree with Joanne, I have read something about a similar situation recently but cannot remember where.

HS222 maybe worth a look at it might contain some information regarding this, usually tax has to be paid on a 365 day period but I am sure that the days between 31st March and the 4th April can be treated as the 5th March



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



Master Book-keeper

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Cheshire wrote:

Hi John
I would hang fire. Coit have raised this issue (very recently) and Im sure Ive seen that ICAEW have too (but cnanot seem to put my finger on their guidance - I need a bloody good read up/sort out of my favourites, they are now more like the 8 lane car crash of Los Angeles (ie worse than the car crash that is the M6!)


 Thanks Joanne, but I'm puzzled as to where coats come into it biggrin biggrin  Guess the M6 was like a dream the past few weeks, although yesterday I went shopping to Harrogate and the roads were much busier than they have been.

Would love to be able to do it if I can, as the majority of the impact on his trade will be in the 2020/21 year.

 

Thanks Doug,  H222 very useful, a bit confusing on the 31st March/5th April bit so will read again when less busy, and I can get my head round it better.  Will keep an eye on CIOT and ICAEW as well.



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John 

 

 

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Guru

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Hi John

I knew I had read something about this recently, it was a thread on Aweb, not sure it really answers your question but may be worth a read.

 

https://www.accountingweb.co.uk/any-answers/what-date-is-it-taxable-0



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



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My understanding for ITSA is that 31st March is treated as 5th April for Self Employment. I would think FHL would be similar.

www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81020

I have been working with someone submitting VAT and ITSA through MTD and we have worked on monthly VAT submissions and then submitting exactly the same periods to ITSA so that it fits for the financial year.

MTD ITSA allows submitting three returns for each month per quarter. That makes reconciling the figures easier between ITSA and VAT because you are submitting exactly the same periods from the same data.

This would be really difficult if ITSA had to be submitted for periods ending 5th of the Month.


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Master Book-keeper

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Artois wrote:

 

Hi John

I knew I had read something about this recently, it was a thread on Aweb, not sure it really answers your question but may be worth a read.

 

https://www.accountingweb.co.uk/any-answers/what-date-is-it-taxable-0


 It doesn't help my situation Doug, but thanks for thinking of me and posting.

To be honest I'm a tad confused with base periods and overlap profits. (Have avoided them to date)  Section 20 indicates the date can be changed to 31st March from 5th April within the first two years, with no detrimental affect.  However the next bit says 

"You may also treat a change of accounting date where the new date is 31 March or 1, 2, 3 or 4 April as though it was a change to 5 April. All overlap profits are deductible in the year that the change takes effect"

Lets say the profits for 2019/20 are £10,000 + £10,000 grant on 3rd April.  Overall profit therefore £20,000   Now if I change the year end to 31st March and work out the overlap profit is £500 + £10,000 grant do I take £10,500 as the overlap profit?

Is the overlap profit then /365 x 5 = £364.84?   If so and that's allowable that would be great.

Is that then ruled out by section 18?  ie must be done for commercial reasons and not to obtain a tax advantage.  Please note there is no tax gain in doing this due to pension income, but it will mean shifting £2000 tax from 19/20 to 20/21

 

Hi John, thanks for the bim81020 link. Says similar to that described above, seems ok to change the date in the first 3 years without issue, but not after.



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John 

 

 

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My reading of it is that you can treat the days 31 March to 5th April as the same day for the purposes of profits.

However, I would have thought that the pension income would not be a tradeable profit anyway, but instead earned income and should be treated for tax on the basis of the date of receipt. However, I don't claim to be a tax specialist although I understand the technical aspects of MTD. I would expect pension to be dated the same way as interest receipts and dividends.



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Master Book-keeper

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johnhemming wrote:

My reading of it is that you can treat the days 31 March to 5th April as the same day for the purposes of profits.

However, I would have thought that the pension income would not be a tradeable profit anyway, but instead earned income and should be treated for tax on the basis of the date of receipt. However, I don't claim to be a tax specialist although I understand the technical aspects of MTD. I would expect pension to be dated the same way as interest receipts and dividends.


 Hi John

Does that still apply after year 3?  ( I may be overthinking it)  

Yes, the pension, savings interest and share dividends are treating as to 5th April, and would remain so.



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John 

 

 

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Hi John,

 

From what I have read, I am of the opinion that you can treat the 31st March as the same as the 5th April (ITTOIA s.220) but it seems more geared towards already having that date and not changing to it, I think the problem that might be open to a HMRC challenge would be the reason for the change, I do not think that it is a 'commercial reason' (s.218) as if it is changed for obtaining a tax advantage then this is not a commercial reason, I know you say there is no tax advantage but by deferring the tax for a year this could well be deemed to be just that.

BUT, I do think that you would have a good argument for the fact that the grant is going to impact the 2020/2021 tax year more than the previous tax year seeing as it was not paid until 3rd April and all the Covid problems did not really take affect until mid-March, that's just my opinion and I would be happy to stand by this and my client in the event of an enquiry.

Might be worth doing what Joanne has said and hold fire for now and wait to see if CIOT or ICAEW come up with any guidance



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



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If accounting on an accruals basis there is an argument that the funds from the grant associate with the costs which are substantially in April May and possibly only half to a quarter of March. However, this is not my specialist area and I don't want to do the research to give an answer with precedents on this.

I simply got into the issue of year end to try to simplify the operation of MTD ITSA along with MTD VAT. It really helps to have the periods being coterminous and tax law appears to allow that.

www.legislation.gov.uk/ukpga/2005/5/section/220

(5)If the accounting date in the tax year is 31st March or 1st, 2nd, 3rd or 4th April, the person carrying on the trade may treat the basis period for the tax year as ending on 5th April for the purpose of calculating the amount of the deduction.

Which does not seem to relate to any number of years.








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Master Book-keeper

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Artois wrote:

 

Hi John,

 

From what I have read, I am of the opinion that you can treat the 31st March as the same as the 5th April (ITTOIA s.220) but it seems more geared towards already having that date and not changing to it, I think the problem that might be open to a HMRC challenge would be the reason for the change, I do not think that it is a 'commercial reason' (s.218) as if it is changed for obtaining a tax advantage then this is not a commercial reason, I know you say there is no tax advantage but by deferring the tax for a year this could well be deemed to be just that.

BUT, I do think that you would have a good argument for the fact that the grant is going to impact the 2020/2021 tax year more than the previous tax year seeing as it was not paid until 3rd April and all the Covid problems did not really take affect until mid-March, that's just my opinion and I would be happy to stand by this and my client in the event of an enquiry.

Might be worth doing what Joanne has said and hold fire for now and wait to see if CIOT or ICAEW come up with any guidance


Hi Doug

I totally agree with the first two paragraphs which is what caused me to raise the query.  I will take the advice from both yourself and Joanne and wait til we have some more info.  I'm not planning on doing the tax return til towards the end of the year, it was just that the client phoned me and raised the query as he knew it was going to impact 19/20 

 

Hi John

Thanks for the link.  Just for reference it's cash basis, rental properties can't be done on accrual no more.

 

Thank you both, as well as Joanne, for contributing.



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John 

 

 

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Guru

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Hi John

On further research (much more fun than what I am doing, I love research!) I think you need to have a read of ITTOIA2005 s.217, this seems to say that you can change the accounting date if

a) give notice to HMRC (tax return)

b) 18 month test (no longer period than 18 months)

c) either condition  A or B are met

Condition A is that no change of accounting date in previous 5 years and new date is in the same year

Condition B is for commercial reasons

So I read it as if one of either A or B is met then it is fine to change, have a read and see what you think but I would still wait to see if further guidance comes out as I still believe HMRC could challenge it



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Doug

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Master Book-keeper

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Hmm, very interesting, thanks Doug.

So, if I've got this right, providing you haven't changed your accounting period in the first 5 years, you can change the accounting date without a reason.

If you have changed the accounting date in the last 5 years then it needs to be for a commercial reason, and not to gain a tax advantage.

I will wait for further guidance as you say, but certainly encouraging.  



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John 

 

 

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Guru

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Leger wrote:

Hmm, very interesting, thanks Doug.

So, if I've got this right, providing you haven't changed your accounting period in the first 5 years, you can change the accounting date without a reason.

If you have changed the accounting date in the last 5 years then it needs to be for a commercial reason, and not to gain a tax advantage.

I will wait for further guidance as you say, but certainly encouraging.  


 Hi John, that is certainly how I read it



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice



Master Book-keeper

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I will have to give this a read next week.

Ive switched my brain off to re-charge it for a couple of weeks as I got so fed up with the daily information overload grind.

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 Joanne  

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position (and by that I dont mean with HMRC)

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