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Chapter 6
TRADING PROFIT – BASIS PERIODS 1. Basis periods Having adjusted the trading profit of the accounting period, computed and deducted the capital
allowances for this period, the tax adjusted trading profit must now be included in the Income Tax
Computation for the relevant Tax Year of assessment.
The problem is that not all traders will prepare their accounts to 5th April so a basis of assessment is
required that will allow HMRC to relate any accounting period of profit to the tax year in which it will
be charged to tax. Traders are assessed on their trading profit using a current year basis (CYB), this
is the tax adjusted trading profit of the accounting year
ending in the tax year of assessment.
If a trader prepares accounts to 30 June each year, his 2022/23 assessment will be based on the tax
adjusted trading profit for the accounting year ending 30 June 2022, as the 30 June which falls into
the 2022/23 tax year (6 April 2022 - 5 April 2023) and his 2023/24 assessment on the accounting
year ended 30 June 2023.
Example 1 (a)
Andrew has been trading for many years preparing accounts to 31 March.
In which tax year will the trading profits for the accounting year ended 31 March 2023 be assessed? (b)
Eric has been trading for many years preparing accounts to 31 August.
In which tax year will the trading profits for the accounting year ended 31 August 2021 be assessed? (c)
Cathy has been trading for many years preparing accounts to 30 April.
In which tax year will the trading profits for the accounting year ended 30 April 2022 be assessed?
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