Worked example of a business that started trading in 2017/18 - Basis Periods (First year rules)

First Year Rules

A basis period is the time period that is used to determine taxable profits for a tax year.  Where there is a commencement of trade during a tax year, the basis period will usually run to 5 April of that tax year, so an adjustment to the taxable profits may be necessary.

The following example shows a business that started trading on 1 November 2017 and prepares its accounts to 31 October.  As the business started on 1 November 2017, the first year rules will apply to the 2017/18 tax year as this is the year that the business commenced trading.

Using SimpleStep

1. Browse to Your work > Self Employment

Enter the whole period of account (not the basis period) and the turnover.

2. If the turnover is below the relevant threshold for the year (£85,000 for 2017/18), then TaxCalc will automatically default to the ‘Short Form – Details’ completion.  In this case, go to Annualised turnover and tick the box that confirms that you want to complete the Full Form.  If your profits exceed the threshold, this step can be skipped.
3. Go to Full Form – Details

Enter all relevant details, including the start date of the business.

4. Click on Next Step and complete all applicable boxes on the following pages.  This will result in the Net business profit for tax purposes, found on the Adjustments page.
5. Click on Next Step (if on the Adjustments page) or Go to Basis Period to enter the Basis period adjustment required to work out the assessable profits for the tax year.
6. Basis Period – The basis period start and end dates will have been entered automatically. If you know what the basis period adjustment should be, this can be entered manually to reduce the Adjusted profits for the basis period. Alternatively, tick the box and you can use the basis period/overlap calculator to work out the adjustment for you, as shown at point 7 below.
7. The basis period calculator will use the accounting period information already entered and the commencement date to work out what the basis period and profit/(loss) is for the period.
8. Close the basis period calculator and the basis period adjustment will be calculated for you for inclusion on the Tax Return.

9. Any Other adjustments, losses and other further information can then be entered in the normal way.

For Second Year Rules please see knowledge base article: Worked example of a business that started trading in 2016/17 - Basis Periods (Second year rules)