Its even worse when you have split vat quarters that dont fall in line with the year end, they are a nightmare. Keep things simple, I say.

From a CT point of view it can make a difference. Financial years for companies run to 31st March and if the Accounting Period straddles two Financial Years which happens without a 31st March year end then it may attract different CT rates (hasn't for a couple of years now but there is a budget tomorrow and an election in May, so who knows what might happen!)

Cheers all,

It's a partnership and as far as I can see on sage there is no way of telling (might be me being dumb).

They've been trading for 4 months and thought it would be nice to have a good clear out (lots of corrections have been made,............. I was learning ) and figured it would be nice to bring everything into line as they are going to be doing a vat return and pay any n.i owed for employers and paye and so forth and so on.

Really I just want my corrected errors out of the way and accounted for so I can start a fresh now I have an idea of what I'm doing .

Steve.

Hi Steve,

my first answer was in response to you saying that it was a company. Partnerships are different. Basically a normal partnership (as opposed to an LLP) is a collection of sole traders so sole trader rules apply.

It's important to get the partnership yearend right for tax purposes. I assume that you know about first year rules and liability to double taxation?

As stated above by Carole you can't just swap and change period end dates. There will be financial implications to your actions and you need to involve the accountant in end decisions so as to ensure that the client does not suffer an adverse tax liability.

Note that there are also restrictions on how often you can change the entities year end. I believe (although I stand to be corrected) that once changed, unless you have a good business reason to alter it then you are not allowed to alter the entities year end for another three years.

I'm not saying that this is not a good time to reset the entities year end. All that I'm saying is that such should be done with great care to ensure correct tax planning for your client.

Looking at it at the moment (you say that the clients been trading for four months) it sounds as though your first three periods of assessment are going to be (assuming start date 01/12/09) :

01 December 2009 to 05 April 2010
01 December 2009 to 30 November 2010
01 December 2010 to 30 November 2011

So any profits from 01/12/09 to 05/04/10 which is the overlap period will be assessed (and taxed!) twice.

I'm afraid that whilst I am aware of this I am no expert in this area of tax planning as I've only been dealing with limited companies for which the rules are different.

Robs ATT so may be able to give additional pointers on overlap periods but really you should talk with the accountant.

cheers,

Shaun.

Cheers Rob,

I've really got to do ATT myself at some stage as I enjoy this side of things but just don't know it to the same sort of depth as yourself.

So many qualifications, so little time!

Lisa Jo wrote:

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Its even worse when you have split vat quarters that dont fall in line with the year end, they are a nightmare. Keep things simple, I say.

---

You can get the VAT changed so the quarters do coincide with the year end. Well you could in the past - I can't see them not allowing it nowadays.

Morning Steve,

please don't take this the wrong way as that's not how this is intended.

there's another thread on here about bookkeepers offering other services and I think that this is a good example of the dangers of making assumptions.

The problem is that where bookkeeping moves into accounts territory you really have to fully understand the complexities before getting involved.

One issue is that when people look at a situation they assume that logically the answer should be X. Unfortunately with a tax regime based around harvesting the maximum return logic doesn't always come into the equation.

The situation detailed in this thread may have turned into an issue or may not, but the key point is that by raising you head above the parapet in order to simplify matters you could so very easily have put yourself in financial jeopardy due to offering advice that whilst it does seem to be helpful and quite logical could have turned out to be completely the wrong advice for this client.

On a more upbeat note I know that in your case you must have known in the back of your mind that something was amiss with the situation otherwise you would not have asked the question. Bet your now glad that you did!

On the how can the tax office do that question.

The tax office know that the money is not theirs and the overlap profits get carried forwards, normally until the year of cessation of trade (which could be a long time in the future). However, when the profits are set off against the final year profits they do not (to the best of my knowledge) have interest added for the time that they were held by the revenue, and neither are they index linked so it's a bit like saying we had overlap profits in 1910 by £5 so we can use that £5 of overlap profits when we cease trade in 2010!

On the second question as to why they don't just see the new tax year as April to March. Well, the answer to that is that Sole traders and partnerships prepare their accounts for accounting periods but as you note income tax returns are prepared on a tax year basis so there has to be link between the two.

To get around the problem the period that is taxed is the period that end in the year.

Actually, lets go through the opening year rules :

Year 1 will run to the 5th of April. That one's quite straight forwards as it's just making sure that in the first tax year of the companies existence no profits are missed between start of trade and the tax year end.

Year 2 has various different rules dependent upon the situation :

If there is no accounting period ending ending in the tax year then use the actual tax year (so in this instance we would run from the 6th of April to the 5th of April the following year. This links in nicely with Robs tax planning for when to choose period ends).

If there is and accounting period ending in the tax year :

- If the accounting period is 12 months long. Tax the 12 months ending in the tax year.

- If the accounting period is less than 12 months tax the first 12 months from commencement of trading.

- For accounting periods longer than 12 months (can be up to 18 months. I personally have never encountered this situation) then tax the last 12 months up to the accounting date.

Providing that there was a 12 month accounting period ending in the 2nd tax year then for year 3 onwards the accounting period should be assessed on a current year basis.

If there was no accounting period falling in the 2nd year then the overlap profits will occur in years 2 & 3 rather than 1 & 2.

Once you get your head around it, it's not really so bad but it's one of those things that's a real pain to try and explain.

There's a lecture over on open tuition that isn't brilliant but if you fancied sitting in on a recorded lecture on opening year rules, try :

http://tv.opentuition.com/video/311/F6-Opening-Year-rules-Example-2-

I've got better examples in my old paper F6 study material but it's in one of these training CD's that you can't cut and paste from and the important bits are actually the pictures unfortunately.

Hope that the above helps gain a better understanding of this area, but I can't emphasise enough to anyone else reading this thread that changing accounting periods should be left to accountants or bookkeepers such as Rob who is ATT trained.

All the best,

Shaun.

I totally agree with you Shaun about tax being left to the accountant.

Unless the bookkeeper has tons of practical tax experience and done exams eg ATT, but then I suppose they are slightly 'more' than a bookkeeper. (This doesn't apply to me, I would only offer very basic tax advice and only if I was 100% sure what I was saying was correct).

I think that sometimes the HMRC  try to lead us to believe that for a small businesses self assessment tax is easy and something that people can just do all by themselves without the need for an accountant but in trying to do that, they can potentially get themselves into all sorts of messes.

Carole

Morning Amanda,

this one's actually ATT rather than AAT although both are great qualifications to have.

As mentioned earlier, so many qualifications, so little time. Much as I would love to take the AAT technician level I just don't think that I've got the time available to devote to that and to a tax qualification which I think really has to come first.

If / When I finally pass the ACCA I think that it's going to be either ATT or CIOT next (under CPD) as I've really noticed that although I have a genuine interest in tax and it's where most of the questions on the site are focused there are some real gaps in my knowledge in this area.

Talk later,

Shaun.

Shaun, I think it was a good explanation but I'm sure there are many scrathing their heads with it. A flow chart would work but I have no idea how to do them! So this is how I see opening years:

Tax Year 1

Hi Shaun,

Oops I read it wrong, I read it as AAT not ATT, shouldn't read things in a hurry while working!!!!

A

Hi Amanda,

it's a really common one to mix up.

The other one of course is ACA and ACCA. I'm sure when most people read that they assume that I've accidentally missed a C out.

I think the worst time to do that of course is during an exam when you speed read the question. Answer it, then on rereading for the next part of the question realise that you've just answered a completely different question to the one being asked! (been there, done that, got the T shirt, writing the book).