special rules for taxation for final years?

Tigger

Are there special rules for taxation of
profits in the final years?
YES. Where a trade, profession or vocation ceases
permanently, the following rules apply in relation to the
assessments for the final years.
Last Year:
You will be taxed on the profits of your business from
1 January in the final year to the date your business ceases.
Second-Last Year:
You will be taxed on the higher of the following figures:
The profits of the twelve month period ending on the
normal accounting date in the second-last tax year,
or
The profits of the twelve month period from 1 January to
the following 31 December in the second-last tax year.

can someone explain this to me?

Mr. Incognito

Sure.

There are special accounting rules which deal with cessation of trade.

Your normal accounting dates can be any period for example or Sept to Sept. However year 1 and final year are always calendar so in this example AT START UP year 1 is Sept to Dec and Year 2 is Jan-Sept and Year 3 is Sept to Sept.

However the tax year runs Jan-Dec.

SO,

to allow for tax reliefs like terminal loss relief that cover preceeding tax periods the deemed FINAL YEAR WHEN TRADE CEASES is always taken as a calendar year.

If your trade ceases 31 Dec then final year is 1 Jan - 31 Dec. Example 1

If your trade ceases 2 Jan then final year is 1 Jan- 2 Jan Example 2

For Tax reasons then Final year is as above and preceding tax year is higher of

Example 1 Final Year 1 Jan- 31 Dec

2nd last year- higher of
A) Preceding Jan-Dec OR
Sept-Sept (assuming we still have a Sept year end)

Example 2 Final Year Jan1-Jan 2

2nd last year higher of
A) Preceding Jan-Dec OR
b) Sept- Jan (as trade ceased in Jan)


Hope that is clearer