Test your understanding: answers
(1). Where a business’s monthly profits are falling it may be beneficial to choose a 31 March year end. With a 31 March year end:
- Profits are taxed in the year they are earned and there are no overlap profits.
- Instead of earlier, higher profits being taxed twice, later, lower profits will be taxed.
For example, in Nora’s second tax year, 2023/24:
- With a 31 March year end the basis period will be the year ending 31 March 2024.
- With a 30 April year end the basis period will be the year ending 30 April 2023.
(2). 31 May year end
1. Profit for each trading period
| £ | |
|---|---|
| Nine months ending 31 May 2023 (£4,000 x 2) + (£3,000 x 5) + (£6,000 x 2) | 35,000 |
| Year ending 31 May 2024 (£6,000 x 4) + (£10,000 x 8) | 104,000 |
2. Taxable profit for the first two tax years
| £ | |
|---|---|
| 2022/23 (1 September 2022 to 5 April 2023) 7/9 x £35,000 | 27,222 |
| 2023/24 (1 September 2022 to 31 August 2023) £35,000 + (3/12 x £104,000) | 61,000 |
