BIM81025 - Computation of liability: basis periods - year of cessation
S202 Income (Trading and Other Income) Act 2005
The basis period for the tax year in which a person permanently ceases to carry on a trade:
- begins immediately after the end of the basis period for the previous tax year, and
- ends on the date of cessation.
If the business commences and ceases in the same tax year the basis period for that year begins and ends on those dates.
Example 1
A new trade commences on 1 July 2010. Accounts are prepared for a 6 month period to 31 December 2010, and to 31 December in 2011 and 2012. The trade ceases on 30 April 2013 and a 4 month account is prepared to this date.
The basis periods are:
| Year | - | - |
|---|---|---|
| 2010-2011 | Year 1 | 1 July 2010 to 5 April 2011 |
| 2011-2012 | Year 2 | 12 months to 31 December 2011 |
| 2012-2013 | Year 3 | 12 months to 31 December 2012 |
| 2013-2014 | Final year | 1 January 2013 to 30 April 2013 |
Change of accounting date in year before cessation
It is quite common for the final period of account of a business to be for a period other than 12 months (for example, the normal 12 month period of account plus a short period to the date on which the business ceased). In such cases the accounts will have been made up to a date which is not the annual accounting date, but without any intention that this ‘new date’ should be used as a new accounting date.
These circumstances do not have to be dealt with as a change of accounting date if the taxpayer chooses not to make a notification of a change of accounting date on their SA return, see BIM81045.
Example 2
A new trade starts on 1 July 2012 and accounts are prepared to 31 December 2012 and 31 December 2013. The business ceases on 30 April 2015 and a 16 month account is prepared to this date.
The basis periods are:
| Year | - | - |
|---|---|---|
| 2012-2013 | Year 1 | 1 July 2012 to 5 April 2013 |
| 2013-2014 | Year 2 | 1 January 2013 to 31 December 2013 |
| 2014-2015 | Year 3 | 1 January 2014 to 31 December 2014 |
| 2015-2016 | Final year | 1 January 2015 to 30 April 2015 |
As there was no intention to change the accounting date in 2014-2015, the trader makes no notification in their 2014-2015 SA return, see BIM81045. The basis period for 2014-2015 remains the 12 months to the ‘old’ accounting date of 31 December 2014.