Newly part-time self-employed - SA100 Basis Period

[nickpc3]

Hello,
I am employed part-time. On 1 March 2005, I also commenced part-time self-employment (freelance writer/photographer). I now have an SA100 Tax Return to complete!

I plan to make my accounts up, probably to 31 Mar or 5 Apr 2006, but have not decided yet. An artist's lot is a tough one and, although I have made sales, it's likely to be another month before I can raise my first invoice!

I'm a little confused on waht my Basis Period would be in this situation (01/03/05 to 31/03/05??) and, in terms of assessing my forecast profit/loss for my first year for payments on account, I really haven't a clue yet. I suspect any profit in the first year may be minimal and possibly overshadowed by start-up capital allowances, so far as tax liabilities for the period are concerned.

Do I need to prepare one month's accounts?!! Must I decide my year-end accounting date yet? What would my Basis Period be, please?

Thanks for your help.

[King_Maker]

Have you read Query #8022?

Although not as advantageous as under the pre SA regime, I still tend to prefer 30th April over 31 March/5 April as a Year End. But even that is very much a generalisation, and the exact circumstances of the business must be examined to determine the optimum date.

The Help Sheet IR222 has some more information on the calculation Business Profits, Accounting dates etc.

It is downloadable from their website.

http://www.hmrc.gov.uk/leaflets/menu.htm

[deanshepherd]

From the information you have given it may be in your interests to have a 5th April year end and prepare accounts for the period 1st March 05 to 5th April 05 and annually from then on.

If you made a loss for this short period then you can set those losses against your employment income and obtain a refund.

If you are interested, I have a stack of free business start-up guides to give away which contain a lot of useful information on the matter. Feel free to email me for a copy.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk

[King_Maker]

"From the information you have given it may be in your interests to have a 5th April year end and prepare accounts for the period 1st March 05 to 5th April 05 and annually from then on." - Dean Shepherd

A valid point - which applies also to 30 April 2005, 31 May 2005 etc. Or 31 March 2006, 30 April 2006 etc.

I would not decide on a "Year End" (which does not have to be 12 months for the first trading period) until (say) April 2006. However, you do need to consider (say) in January 2006 if a payment on account is required for 2004-05 and 2005-06(latest is 31/1/2006).

[nickpc3]

Thank you both for your quick and helpful responses.

I found query #8022 after posting my question, but wasn't certain that I could relate that 5-day situation to mine of one month, and reading IR222 hadn't made things much clearer!

For purely personal accounting/SA simplicity reasons, I may make my decision (even if I technically don't need to yet) on a year end of 5 April 2006. It appears from your replies that I may be best off preparing accounts for the initial period 1/3/05 to 5/4/05, although losses for the month will be fairly modest. I was hoping the IR would find a Nil assessment for the first month more beneficial from an admin point of view (as would I!), then consider the full period of trading once it has finished next April.

The more major element, proportionately, is capital equipment (photographic and IT) needed to get started, and which I've needed to add to more substantially since 31 March.

Am I correct in assuming that I should leave Capital Allowances as 'not claimed' for the moment
and include these instead in 2005/06? If I claimed now, would I not be claiming 1/13th of these and possibly losing some advantage of the enhanced CAs on commencement? Or could I still claim the remaining 12/13ths of these (plus subsequent additions) on next year's return, still at the enhanced levels?

Forgive me trying to get answers to 2 questions from one thread!!

Nick

[deanshepherd]

Hi Nick

A nil assessment isn't really an option for you as you have incurred expenses but not earned any income prior to 5th April 2005. You could choose not to set the modest losses off against your other income but instead carry them forward to set off against your future profit for 2005/06.

Unless you are sure of being a higher rate taxpayer in 2005/06 then why would you not want to get a refund of tax that you are entitled to?

With regard to capital allowances, the first year allowances (enhanced as you say) cannot be deferred, you either take them or lose them. You will still get the standard 25% writing down allowance in subsequent years. FYA's are not restricted for short accounting periods so your 'losses' (and thus your tax refund) may not be as modest as first thought.

Seeking professional advice now will pay dividends for the future. Why not use the 'Find a professional' link to the right. Most advisers listed offer a free initial consultation, as indeed do I.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk

[King_Maker]

"Unless you are sure of being a higher rate taxpayer in 2005/06 then why would you not want to get a refund of tax that you are entitled to?" -Dean Shepherd.

Because there may be no refund due, even if there is an allowable loss.

It depends on Nick's other income for 2004-05 (and previous 4 years), as his Personal Allowances might be wasted.

More data is needed to optimise the tax position, which, in turn, could resolve the accounts issue.

[nickpc3]

Thanks again, Dean and King_Maker - your replies have helped make things much clearer!

I think it's unlikely my employed/self-employed occupations would take me into higher rates for 2005/06. If it was going that well, I would probably be inclined to leave the 'employed' behind first!

For the years mentioned, I've been a standard-rate tax-payer and over those years have paid more tax than I would now be claiming in CAs - especially if I can go back as far as 2000-01, as I was employed full-time for all but the last 2 years.

I think my first accounting period might as well be 1/3/05 - 5/4/05 (just seems a silly period for an accounting 'year'!) then work to 5/4 from there onwards.

I certainly take the point made on professional advice and will give that more thought.

Many thanks once again to you both.

Nick

[nickpc3]

p.s. I've just found ir227, which indicates I can carry back the loss to 2001/02 (not 2000/01 as I mentioned earlier).

All is thankfully becoming clearer (I think).