Accounting period longer than 18 months

Introduction

If the accounting period is changed and the new period is longer than 18 months, the new end date will not be used until the second time the new period is used s62A. The only times this rule will not apply will be for the opening period and the closing period, both of which may be longer than 18 months.

There are two possible scenarios:

• A period longer than 18 months that ends in the next tax year. For example changing from 30/6/01 to 31/3/03
• A period longer than 18 months than spans an entire tax year. for example changing from 31/7/01 to 30/4/03 (there is no period end in the 2002-03 tax year)
  

1 - New period ends in the following tax year

In the first scenario/example, there is a 21 month accounting period: 1/7/01 to 31/3/03.

The correct basis of taxation will be as follows:

• 2001-02 - 12 months to 30/6/01 (365/365 of p/e 30/6/01)
• 2002-03 - 12 months to 30/6/02 (365/639 of p/e 31/3/03)
• 2003-04 - 21 months to 31/3/04 (274/639 of p/e 31/3/03 + 366/366 of p/e 31/3/04)

Although the period end date falls in the 2002-03 year, it will not be allowed because the period is longer than eighteen months. The new date will not be accepted until the first anniversary of the new date: 31/3/04. Overlap relief will be given, if any exists, in the 2003-04 tax year.

• If the change to 31/3/03 had been achieved by having a 12 month account period to 30/6/02 and a 9 month account period to 31/3/03, the 21 month basis period would have been allowed in 2002-03.

2 - New period spans the following tax year

In the second scenario/example, there is also a 21 month period, this time running from 1/8/01 to 30/4/03.

The correct basis of taxation would be:

• 2001-02 - 12 months to 31/7/01 (365/365 of p/e 31/7/01)
• 2002-03 - 12 months to 31/7/02 (365/638 of p/e 30/4/03)
• 2003-04 - 12 months to 31/7/03 (273/638 of p/e 30/4/03 + 92/366 of p/e 31/3/04)
• 2004-05 - 12 months to 30/4/04 (366/366 of p/e 30/4/04)

Although the period end date falls in the 2003-04 year, it will not be allowed because the period is longer than eighteen months. The new date will not be accepted until the first anniversary of the new date: 30/4/04. Overlap profit of 92 days will accrue in 2004-05.

• If the change to 30/3/04 had been achieved by having a 12 month account period to 31/7/02 and a 9 month account period to 30/4/03, the new date would obviously have been allowed in the 2003-04 because the account period was not longer than 18 months.