THE NEW BUSINESS
Part (c)
This is the Finance Act 2013 version of this article. It is relevant for candidates sitting the Paper P6 (UK) exam in 2014. Candidates sitting Paper P6 (UK) in 2015 should refer to the Finance Act 2014 version of this article, to be published on the ACCA website in 2015.
So far in this article we have compared trading as an unincorporated trader with trading through a company by reference to the various relevant taxes. We are now going to look at the choice of year end for an unincorporated trader.
CHOICE OF YEAR END
The choice of year end affects when the profits of the business will be subject to income tax. For example, where a 31 March year end is chosen, the profits earned in a tax year are taxed in that same tax year (the profits earned in the year ended 31 March 2013 are taxed in the tax year 2012/13). Alternatively, where a 30 April year end is chosen, the majority of the profits earned in a tax year are not subject to income tax until the following tax year (the profits earned in the year ended 30 April 2013 are taxed in the tax year 2013/14).
When a new business begins to trade, the profits assessed to tax in the first two tax years will vary, perhaps considerably, depending on the choice of year end.
Illustration 1
Mizuki began trading on 1 January 2014. Her tax adjusted profits per month are set out below.