(1). The length of a trader’s overlap period is equal to the number of months from the accounting date to the end of the tax year. Accordingly, the change of accounting date will increase Nathan’s overlap period from five months (1 November to 5 April) to nine months (1 July to 5 April).
(2). Harry’s terminal loss
| £ | £ | ||
|---|---|---|---|
2015/16 (6 April 2015 – 31 December 2015) | |||
| 9/10 x £14,000 loss | 12,600 | ||
Overlap profits | 1,300 | ||
13,900 | |||
2014/15 (1 January 2015 – 5 April 2015) | |||
1 January 2015 – | |||
(2/12 x £10,800 profit) | (1,800) | ||
1 March 2015 – 5 April 2015 | |||
(1/10 x £14,000 loss) | 1,400 | ||
Net profit, so nil loss | ― | ||
13,900 |
(3). Statement A is false.
The loss can be offset against the trader’s taxable trading profits of the year of cessation and the three years prior to that year on a last in, first out basis.
Statement B is false.
The de minimis rule states that there is no requirement to account for output tax in respect of assets held on cessation where the VAT due does not exceed £1,000.