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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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, I've just changed the basis period partnership tax

Resolved Question:

, I've just changed the basis period partnership tax return so it now ends on 5th April 2014 to tie in more easily with the govt tax year. This means my year is now 17 months long. Should I enter anything in the 'adjustment on change of basis' box 3.82? The profit months is £11,600 after AIA and capital allowances are taken into account. I don't want to waste my capital allowance. Should I be adjusting the profit so the £11.6K is pro-rated to the equivalent of 12 months profit, ie £11.6K divided by 17, multiplied by 12? If so, what do I actually enter in box 3.82. I've looked through the HMRC guidelines and can't find anything specific to help me! Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
.

Can you tell me exactly when you started the business and the start and end dates of your first accounting period please. How much are your capital allowances?
Customer: replied 1 year ago.

The business started on 1st Nov 2003, so the basis period tax return would normally be from 1st Nov 2012 until 31st Oct 2013. However, I'm now ending it on 5th April 2014. It's the first change I've made since the business started. I'm claiming AIA of £19504, and Capital allowance of £5861.

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer. It will take a while.
Customer: replied 1 year ago.

Thanks Tony!

Expert:  TonyTax replied 1 year ago.

again.

I'm assuming you have always run your accounts to 31 October so the first year would have run from 1 November 2003 to 31 October 2004.

The basis period /04 would have run from 1 November 2003 to 5 April 2004 (the first year basis).

The basis period /05 would have run from 1 November 2003 to 31 October 2004 (the 12 months accounting period ending in 2004/05, the second year basis).

There is a period of overlap from 1 November 2003 to 5 April 2004 so the post capital allowances profits period (a proportion of the whole year post capital allowances profits) would have been taxed twice. The profit taxed twice is called overlap relief and there are only two occasions when it can be used. The first is if there is a change of accounting date so that the accounting period is more than 12 months as in your case. The second is when the business ceases.

You have extended your accounting period to 5 April 2014 and that extension coincides exactly with the length of the overlap relief period so that you can use all or part of the overlap relief to reduce your taxable profit if you wish and reduce your capital allowances claim if you wish. You don't have to use all the available capital allowances. You can claim from £0 to the maximum available, thereby preserving allowances years and not wasting them.

You don't pro-rate your profit /14 from 17 months to 12 months. Nothing goes into box 3.82. The basis period /14 is 1 November 2012 to 5 April 2014.

I hope this helps but let me know if you have any further questions.

Customer: replied 1 year ago.

Thanks information Tony. In the first trading year (including the overlap period), we posted a loss, so presumably I should just leave everything as it is now year's tax return?

Expert:  TonyTax replied 1 year ago.

If you posted a loss in year one, there will be no overlap relief. You still don't pro-rate your basis period from 17 months to 12 months.

However, if your profit is only £11.6K before capital allowances, there would be seem little point in claiming capital allowances unless the partners have other income sources to use their personal allowances and/or offset a post capital allowances loss against. As I said in my answer, you can limit your capital allowance claim to whatever level you like.

Customer: replied 1 year ago.

Thanks Tony, that's really useful. Actually the profit is 11.6K after capital allowances and AIA have been taken off (overall net profit was around £37k). Have a great evening! Anne

Expert:  TonyTax replied 1 year ago.
Thanks, ***** *****
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