Your accountant can help you determine which accounting period is best for your business. The key difference between accounting periods and basis periods is that basis periods are determined by HMRC, while accounting periods can be chosen by the business owner. This can often lead to overlap profits and reliefs, so it’s important to consult with an expert before making any decisions. Accountants in Luton are experienced in dealing with self-assessment and can help you ensure that you’re following the correct procedures. Contact us today to book a consultation.
Accounting periods
As a business owner, you’ll need to choose an accounting period for your business. This is the timeframe in which you’ll prepare your accounts and file your taxes. Many sole traders choose to align their accounting period with the tax year, which runs from 6 April to 5 April. This makes it easier to keep track of your finances and ensure that you’re up to date with your tax obligations. However, you can choose any period you like as long as it is 12 months or less. Once you’ve chosen your accounting period, you’ll need to stick to it until you notify HMRC of a change.
Your accountant can help you determine the best accounting period for your business and make sure that all of your financial reporting is up to date. Accountants can also help you with other aspects of your business finances, such as bookkeeping, tax planning, and raising finance. To find an accountant in Luton who can help you with all of your business needs, contact us today.
Basis periods
Your basis period is the period of time that HMRC assesses you for tax purposes. This is usually the same as your accounting period, and if your accounting year end is the same as the tax year end, your basis period will match your accounting period until your business ends.
However, if you prepare your accounts to a different date than the tax year (such as 31st December), then you will pay tax on the profit for the accounting year that ended within that tax year.
For example, if your year end is 31st December, then for the tax year 6th April 2021 – 5th April 2022, you will pay tax on the profit you made in 2020. This is because your 2020 accounting year would have ended within that tax year.
If you have any questions about your basis period, or how it affects your tax liability, please speak to your accountant. Accountants in Luton will be able to advise you further.
Overlap profits and overlap relief
If your business has a year end that doesn’t match the tax year end, then special rules apply. Your basis period and your accounting period won’t be the same, and if your business is profitable, you’ll pay tax on the same profit twice (overlap profits).
Overlap relief is available to offset these overlap profits. However, it can only be claimed when your business changes its year end or closes down.
If you have any questions about how these rules apply to your business, speak to your accountant in Luton. They will be able to advise you on the best course of action.
