Your assessment to tax for any year is normally based on your actual income earned in the tax year i.e. from 6 April to the following 5 April.
The amount assessed in respect of any other income, e.g. investment income, rental income etc. is based on the actual income earned in the tax year, i.e. from 6 April to 5 April.
It is up to you to decide the date to which you prepare your accounts. You can prepare your accounts from the date your business started to any date you choose. Once chosen you usually prepare all future accounts to the same date each year and this becomes your accounting year end. It is advisable to have 5 April as your accounting year end as this will coincide with the tax year end.
As your business changes you may find that your year end date is inconvenient, for example it may coincide with a time when it is your most busiest. In such circumstances you will be allowed to change your year end. There are special rules relating to change of accounting date and the revenue will ensure no profits have been left out as a result of the change. However due to planned changes the way the self employed are taxed all profits will be taxed for the year to 5 April each year, so if you have a different year end the taxable profits will be a proportion of the profits for the 2 accounting years to make up the taxable profits to 5 April each year, hence it is now preferable if all self employed have an accounting year ended on 5 April.
If your business is a partnership, there are special rules to calculate taxable profits. The taxable profits of the partnership is calculated and then divided between the partners in accordance with the profit sharing agreement they have made. Each individual partners tax liability will then be calculated using the same rules that apply to self employed persons working on their own.
There are special rules for taxation of profits in commencement years,
You are taxed on the profits of the business from the date you started to the following 5 April.
There are special rules relating to your final years of trading, basically however all the profits assessed for tax for all years of your self employment will equal the sum of all your profits earned during this time.
All Rights Reserved | © Gerald Charles & Co