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Sole Trader - Changing the end of tax year date

  • Fellow PM.Dip
  • Practice Licence
  • 70 posts
  • # 120284

 

Hi

I have a client who wants to change their tax year from: 1 October to 30 September To: 1 April to 31 March.

I understand that I have to submit the tax return from the 1 October 2019 to the 31 March 2021 (last return was 1 October 2018 to 30 September 2019)

Could I submit from the 1 October 2019 to the 30 September 2020 ( 12 months) informing HMRC on return of change of tax year and the following year from submit the return from1 October 2020 to the 31 March 2021 (6 months)

If this approach is acceptable to HMRC am I correct in assuming that I would not have to calculate any overlap profits.

You’re help will be greatly appreciated

Kind regards
John

  • Member
  • Practice Licence
  • 13 posts
  • # 120291

Hi John,

Surely in your scenario you will be 12 months behind, ie the 20/21 tax return up to 30/9/20 and then the 21/22 return up to only 31/3/21 ?

I would think you would have to submit thie 20/21 return to 31/3/21 as in the first option.

 

 

Thanks

Terry

  • Fellow PM.Dip
  • Practice Licence
  • 70 posts
  • # 120299

Hi 

Thank you for your reply Terry.

I have had a rethink 

According to HMRC only 7% of sole traders and partnerdhips have an accounting year end date that is not the end of the financial year. I have not encountered this before.

The sole trader qualifies for a change of accounting date.

Tax Year 2020/21

I am proposing to include the dates 31October 19 to 31 March20 which is 18 months. I will inform HMRC of the change in accounting year end date.

Tax Year 2021/22

This year has to be for a 12 month period starting 1st April 20 and ending in 31 March 21 

There will be 6 months overlap profits from (March to September) that cannot be reclaimed with two exceptions (1) cessation of business and (2) change of accounting date.

However the overlap profit can be offset by the Sole traders first year of trading if a profit was made. In this case it would be September to March (6months)

 

Could a member of the ICB technical committee please comment on my post.

Thank you

John

  • Practice Licence
  • 6 posts
  • # 120300

Hi JRB,

Thanks for getting in touch.

To ensure that you get a swift answer to your enquiry, please call us on 0203 405 4000 and a member of our team can help you.

Many thanks,

Alex at ICB

  • Member PM.Dip
  • Practice Licence
  • 8 posts
  • # 120305

Hi John,

If the current year is 1/10/19- 30/09/20 that will fall into the 2020/21 tax year. If you want to change the year end to 31 March 21, for tax, you will have to extend the year thereby creating an 18 month period. That whole 18 months will then fall into the 2020/21 tax year. 

When you client first started, they may have overlap profits depending on if they made a profit in the first year. When you change the year end, you can deduct those overlap profits. 

Your client may have made little profit in the first period, so therefore will have very little overlap profits bought forward. If your client is now relatively successful you will have 18 months in one tax year and deduct very little in overlap profits brought forward, so potentially are going to give them a fairly big tax bill. 

Changing a year end of a sole trader/partnership does need care.

Joe FCCA

  • Fellow PM.Dip
  • Practice Licence
  • 70 posts
  • # 120306

Hi Joe

Thank you for your reply which is very helpful. I will speak to my client and outlinr the pros and cons of aligning her end of year with the fiscal year end.

John

 



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