Hi all, on this rather miserable rainy day in Essex! I have a client who does her own SA tax return (she has a Limited Company and is self employed). I have not studied SA yet but she has asked me a question. What happens when your financial year does not coincide with the tax year. i.e. her financial year is Sept 11 to Aug 12 (which coincides with her Limited Company financial year as they do business between them). Should the figures she puts in her tax return be from Sept 11 to 5 Apr 12 or for the whole of the financial year?
Is this the first year for self employment? (overlap rules to consider).
You say that there is business between the companies but does any associated connected profit need to be backed out?
When the two businesses are both established then the situation will be that the limited company profit are based on its financial year. (Sept to Aug), Self employment trading profits and losses are based on the financial year (Sept to Aug), Self assessment is based on April 6th to April 5th.
First year only for the self employment you will have a basis period running from Sept 11 to April the 5th 2012 and then the following period September 11 (!) to August 12 with September 11 to April 5th 2012 taxed twice as overlap profits.
Even if the self employment turns over less than £73k in the first year (and second) you will need to complete a full return (S103f rather than S103s). Overlap profits go in box 69.
The self assessment is however done for the whole year, not only from Sept to April but with the self employment pages for the first year basis period of September to April.
I'll have money on it that your client has not considered overlap profits or the backing out of inter business trades as I know that it always comes as a shock to clients when you tell them that they have to pay tax on the same profits twice (losses are not counted twice)
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Yes this is the first year of self-employment. She started September 11 to coincide with the Limited Co. financial year. The position is that she doesn't intend to make a profit from self-employment and the inter company business is literally straight in and straight out...i.e. Self-employed business is billed for rent, pays it and then bills the Limited company for the same amount, so in an ideal world there will be no profit and no loss at the end of the year.
I think it best that she asks her accountant for advice as I got a bit lost half way through your post...lol I've just read Helpsheet 222 which talks about basis periods and overlap profits, so in my client's case her accounting date is 31 Aug 12 (yr 1 Sept 11 to 31 Aug 12) and her basis periods are 1 Sept 11 to 5 April 12 and 1 Sept 11 to 31 Aug 12? Overlap will be 1 Sept 11 to 5 April 12.
Would it not be easier if she changed her accounting date to 5 April and then made up her self-assessment from 1 Sept to 5 April?
I'll just butt in cos there's bugger all on telly. Think you've got the idea. Supposing they chose 31 December as the accounting date. The Overlap Period would be 1 Jan 2012 to 5 April 2012. EG. Year 2 is 12 months to the accounting date.
Re. changing accounting date, you do need to clear it with the accountant. Yes, it is easier to have 5 April and simplicity might be the deciding factor. However, with rising profits at the start of a trade, they might want to leave higher profits to be taxed later. If you wanted to be thorough, you'd consider if higher bands of tax and national insurance could be avoided. Initial setting up costs might swing the decision one way or the other.
If you were to keep the 31 August year-end then you'd look at claiming the overlap relief as soon as there is a trend of falling profits (by extending the accounting period).
As for backing-out and inter-company transmogrifications, thats real accountancy and I'll leave it to the experts.
You're right about there being bugger all on telly! Hope it improves tomorrow!
I think I'm going to suggest my client either rings HMRC or her accountant. To be honest I don't think she's even told her accountant she's self employed. The idea is that there will be no profit or loss and the transactions between the Limited Company and her self-employment will cancel each other out, which is why she wanted to keep the same accounting dates.
I will email her and hope she reads it before she submits her return. ICB Self-Assessment course/manual here I come!!
Thanks Shaun and Tim and have a great day tomorrow!!
But on the TV front don't forget that the final ever (apparently) episode of Merlin is on at 20:15 tonight.
On the transactions between the limited company and the director in a self employed capacity that doesn't sound like self employment as it lacks any profit motive. It just sounds like the director paying the rent on behalf of the company and then being reinbursed.
Good luck with the client Pauline but as Tim suggests, might be a good idea to point her towards the accountant as I think that she's making decisions without realising the potential consequences. (doesn't sound as if double taxation on the overslap will be an issue but I feel that such is more by accident than design and suspect that your client knew nothing of that little featurette of the tax system).
Hope that you have a great day as well.
Just forget about all of this for a couple of days and enjoy your Christmas.
All the best for Christmas and wisjing you the happiest and most prosperous of new years,
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
