ECL26300 - ECL example: more than one accounting period ending within the financial year
[ECL22100] explains that the relevant accounting period is first that which ends within the Financial Year. If a person has a short accounting period, they may have two accounting periods which end within the financial year.
In this instance, S56(4)(1) applies to combine the revenue for these accounting periods. However, the sum of the relevant accounting periods will likely not be 12 months. A proportional adjustment of the band ranges is needed using a daily basis calculation.
Example 1
Echo Ltd has two accounting periods ending within the 2026 financial year.
- The first accounting period is a 365-accounting period of 1 October 2024 to 30 September 2025, with a UK revenue of £24m.
- The second was a short 182-day accounting period of 1 October 2025 to 31 March 2026, with a UK revenue of £14m
This means that Echo Ltd’s relevant accounting period is 1 October 2024 to 31 March 2026. Therefore, S56(4)(1) applies to sum the UK revenue for the two accounting periods; the UK revenue for ECL purposes is £38m.
Because the relevant accounting period is other than 12 months, a proportional adjustment of the ECL band ranges is needed using a daily basis calculation.
There are 547 days in Echo Ltd’s relevant accounting period. The band ranges must be adjusted by multiplying them by 547/365.
This means that the adjusted ECL band ranges are as follows (rounded for simplicity):
- Small: Does not exceed £15.3m
- Medium: More than £15.3m but no more than £54m
- Large: More than £54m but no more than £1.5bn
- Very Large: More than £1.5bn
With a turnover of £38m from a 547-day relevant accounting period, Echo Ltd falls within the medium banding.
Example 2
In this example, we look at a person who has more than one accounting period ending in the financial year, but the person was not carrying on a regulated business for the entire financial year.
Xenon Ltd has a 12 month accounting period from October 2021 to 30 September 2022 with a UK Revenue of £30m, and a short accounting period of six months from 1 October 2022 to 31 March 2022 with UK revenue of £14m.
Xenon Ltd started carrying out a regulated business from 1 October 2022.
Under S56, the relevant accounting period is first that which ends within the financial year. There are two which do end within the 2023 financial year, the accounting period from 1 October 2021 to 30 September 2022 and the short accounting period of 1 October 2022 to 31 March 2023. These both make up the relevant accounting period, which is 547 days long.
Although there was no regulated business carried on for the entirety of the first accounting period to 30 Sept 22, Xenon Ltd is liable to the levy because it carried out a regulated business at any point in the financial year.
Because there is more than one relevant accounting period, we must sum up the UK revenue for these relevant accounting periods. However, an apportionment of band ranges is needed, as the as the combined length of the accounting periods exceeds 12 months.
There are 547 days in Xenon Ltd’s relevant accounting period. The band ranges must be adjusted by multiplying them by 547/365.
The band range is medium for Xenon Ltd, as the combined UK revenue of £44m for the relevant AP is more than £15.3m (£10.2m multiplied by 547/365) but no more than £54m (£36m multiplied by 547/365).
However, the person only carried on a regulated business for part of the financial year. This was the 182 days from 1 October 2022 to 31 March 2023.
The medium band ECL charge is usually £10,000. This is apportioned on a daily basis using 182/365 multiplied by £10,000.
This gives an ECL charge of £4,986 payable on or before 30 September 2023.