Tax Year

RollYerOwn

Hi all. I became a sole trader in April 2010.

Ceased trading right now and back to college after my chosen career went down the toilet.

I had an accountant for the first tax year.. things weren't to bad all in all - now I can't afford an accountant for the little trading I managed subsequently. So I'm gonna have to manage it myself :rolleyes: I know I know but truly have nothing left to play with and I'm rather hoping I will be covered - or due a refund even - on my first year's preliminary tax.

The accountant had my first tax year as down from start of business until the end of March 2011 - they told me that the first year had to be a full year.

My question is, does my second tax year go from 1st April 2011 to Dec 31st or does it also extend beyond? If the former, would I have to factor in any weird strange representative figures? For example - how will I work out my tax credits for that period? Presumably divide it by number of days in the full year and times by what's left of that year?

Thanks in advance..

Alan Shore

You will do your accounts from April 11 to July 12. Then 7/15 of this profit will be your profit for 2012 together with any other income between now and December 12.

You should also look at your actual profit for the Calendar year 2011, to see if that is less than the profit to march 11.

smeharg

RollYerOwn wrote: »

Hi all. I became a sole trader in April 2010.

Ceased trading right now and back to college after my chosen career went down the toilet.

I had an accountant for the first tax year.. things weren't to bad all in all - now I can't afford an accountant for the little trading I managed subsequently. So I'm gonna have to manage it myself :rolleyes: I know I know but truly have nothing left to play with and I'm rather hoping I will be covered - or due a refund even - on my first year's preliminary tax.

The accountant had my first tax year as down from start of business until the end of March 2011 - they told me that the first year had to be a full year.

My question is, does my second tax year go from 1st April 2011 to Dec 31st or does it also extend beyond? If the former, would I have to factor in any weird strange representative figures? For example - how will I work out my tax credits for that period? Presumably divide it by number of days in the full year and times by what's left of that year?

Thanks in advance..

Your first year didn't have to be a full year.

When did you cease trading?

You'll be assessed as follows:

Year 1 (2010) taxed on actual profits from commencement the end of the tax year, ie April 2010 to 31 December 2010
Year 2 (2011) taxed on profits for your accounting year ended 31 March 2011.
Year 3 (2012) tax on profits from 1 January 2012 to date of cessation.

If the profits on which you are taxed exceed your actual profits (as there is clearly an overlap) you can elect to have year 2 assessed on an actual basis, ie profits from 1 January 2011 to 31 December 2011.

RollYerOwn

Thanks guys. Much appreciate the time taken to answer.

Perhaps there is a definition of "ceasing trading" that I don't fully understand - what I mean is that I no longer trade, not that I have de-registered or anything with the revenue. I stopped trading by March 1st 2012.

Not sure what the difference between actual profit and profit (as you have both alluded to) is to be honest! Perhaps I can explain my ignorance by having a stab at it..

My accountant submitted my tax return for the year beginning April 1st 2010 and ending 31st March 2011. So I presumed that was my Year 1...? I can't find any mention in the report of my unaudited accounts of them including (part of) a second year - so I'm confused!

Is it possible that the accountant would have considered 3/12ths of this profit (ie. Jan - March 2011) as profit for 2012 and apportioned it that way with the revenue? As I said - documentation doesn't support this but maybe if I rang revenue? - I could be misunderstanding!

Would this relate to actual profit and profit ? - ie. the "profit" for the 2012 tax year being currently paid as 3/12ths of the "Year 1" with the actual profit from Year 1 being the profit accrued between Jan - Dec 2011?

If that takes care of 2012 then the remaining two months of trading Jan 1st - March 1st 2012 - plus anything I (won't actually) earn until Dec 2012 - will be calculated subsequently for 2013?

RollYerOwn

Oh sorry - I checked that the profit declared as part of the accounts was actually from sales between 1st April 2010 - March 31st 2011. I suppose this would mean it represents the actual profit?

smeharg

There are 2 types of year you need to get your head around:

1. The tax year which runs from 1 January to 31 December
2. YOUR accounting year which runs from 1 April to 31 March

Normally, you would be taxed on your profits for your accounting year ending in the relevant tax year. So, for the tax year 2012 you would be taxed on your profits for your accounting year ending 31 March 2012.

However, in commencement and cessation of business situations the treatment is slightly different.

For your first year of trading, in your case 2010 you should have been taxed on your profits from April 2010 to 31 December 2010. This is referred to your "actual" profits arising in that year.

For 2011, your second tax year of trading, you should have been taxed on your profits for the accounting year ending 31 March 2011.

For 2012, as you have ceased trading, you should be taxed on your profits arising from 1 January 2012 to the date of cessation, again this is referred to your "actual" profits.

Under these rules there may be periods which have been tax twice, or not taxed at all. For that reason, you can calculate your actual profits arising, on a calendar/tax year basis for each of the 3 tax years. If the total actual profits calculated on this basis is less than what you were assessed on then you can have each year reassessed on the actual basis.

You need to speak to your accountant and see what profits you were assessed on for each of the years.

RollYerOwn

Thanks smeharg. I don't understand in the slightest, but thanks anyway. I have emailed my accountant - who is no longer my accountant - and I'll see if they can explain what they've done. If not, I can't see how I can calculate my own taxes under such an obfuscated system. As I don't have funds to employ an accountant I don't know what I'll do.

smeharg

RollYerOwn wrote: »

Thanks smeharg. I don't understand in the slightest, but thanks anyway. I have emailed my accountant - who is no longer my accountant - and I'll see if they can explain what they've done. If not, I can't see how I can calculate my own taxes under such an obfuscated system. As I don't have funds to employ an accountant I don't know what I'll do.

Sorry I couldn't get the concept across. Sometimes when you're too familiar with something it can be difficult to express it in straightforward terms.

I hope you get it sorted.