Basis Period

[sharazn]

Hi,
I am drawing up my first year sole trader accounts for the year ended 31 May 2007, and would greatly appreciate any advice/examples as to how i would work out/calculate my first year basis period, and adjusted profits for the period 5th April 2007.

Am i correct to ascertain that you take the number of days from the date you commenced self-employment, till 5th April, and add them up. you then take add the rest of the days up till the year end, in my case 31 May 2007, which should give me a total 365 days.

for example: my profits for instance are £5000 for the year

1/6/06 - 5/4/07 = 309 days
6/4/07 - 31/5/07 = 56 days

Therfore, giving me a total of 365 days, here is where i get stuck and have no clue what to do.

Could some one please advise me as to how i would calculate the adjusted profit, and what figure i should put in the self-assesment (self-employment) box 3.77 for 2006/07.

If anyone has any suggestions to a easier method for working adjusted profits then please kindly provide an example.


Kind regards

Junior

[King_Maker]

Have you read the Inland Revenue's Help Sheet IR222?

This gives guidance on calculating business profits, expenses, losses, accounting periods etc.

It is downloadable from their website.

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

Perhaps you need an accountant?

[sharazn]

Thanks for your response king_maker, i have read the help sheets on IR222, but it doesn't tell me which figure goes in which box, So if any one out there can use the above figures to help me that would be immensly appreciated.

Many Thanks

Junior.

[King_Maker]

Normally, the profits are apportioned on a time basis - so 309/365ths are attributable to 2006-07.

However, there is no need to draw up your first accounts to 31 May 2007. You could choose 31 March 2006 (which HMRC will treat as 5 April, by concession), or 31 August 2007 etc.

There have been a few threads about choosing the optimum accounts date - have you read them?

[Bob Jones]

On the assumption that your profits are £5000 for the year to 31 May 2007 and you use that date as your accounting date then the assessable profit for 2006/2007 is the actual figure and, as the accounts ended in the second year are for a full year, the second year is the figure per the accounts ended in that year. In other words :-

2006/2007 5000 x 309/365 = £4232
2007/2008 £5000

You will, I hope, notice that whereas you have earned one amount of £5000 HMRC have used £4232 twice. This "overlap" profit is deductable from your final profit when you cease - so make a note of it ...

Bob Jones
Internet Taxation Ltd
bob@internet-taxation.co.uk

[sharazn]

Many thanks to all those who kindly contributed with their help and advice.

Regards

Junior