The new business
Part 2 of 4
This is the Finance Act 2024 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2025 to 31 March 2026. Candidates sitting ATX-UK after 31 March 2026 should refer to the Finance Act 2025 version of this article (to be published on the ACCA website in 2026).
So far in this article we have reviewed the tax year basis of assessment. We are now going to look at this in more detail in relation to a taxpayer’s choice of year end.
Choice of year end
When a new business begins to trade, the choice of year end will have an effect on the profits assessed to tax in the first tax years of trading.
Illustration 1
Mizuki began trading on 1 January 2025. Her tax-adjusted trading profits per month are set out below:
| £ | |
|---|---|
| January and February 2025 (two months) | 3,000 |
| March to September 2025 (seven months) | 4,000 |
| October to December 2025 (three months) | 8,000 |
| January 2026 onwards | 12,000 |
If Mizuki adopts a 31 March year end, her taxable trading income for the first three tax years of trading would be calculated as follows:
1. Profit for each trading period
| £ | |
|---|---|
| Three months ending 31 March 2025 ((£3,000 x 2) + (£4,000)) | 10,000 |
| Year ending 31 March 2026 ((£4,000 x 6) + (£8,000 x 3) + (£12,000 x 3)) | 84,000 |
| Year ending 31 March 2027 (£12,000 x 12) | 144,000 |
2. Taxable trading profit for each year
| £ | |
|---|---|
| 2024/25 (1 January 2025 to 5 April 2025) | 10,000 |
| 2025/26 (6 April 2025 to 5 April 2026) | 84,000 |
| 2026/27 (6 April 2026 to 5 April 2027) | 144,000 |
| Total taxable trading profits for the first three tax years | 238,000 |
If Mizuki adopts a 30 April year end, her taxable trading income for the first three tax years of trading would be calculated as follows:
1. Profit for each trading period
| £ | |
|---|---|
| Four months ending 30 April 2025 ((£3,000 x 2) + (£4,000 x 2)) | 14,000 |
| Year ending 30 April 2026 ((£4,000 x 5) + (£8,000 x 3) + (£12,000 x 4)) | 92,000 |
| Year ending 30 April 2027 (£12,000 x 12) | 144,000 |
2. Taxable trading profit for each year
| £ | |
|---|---|
| 2024/25 (1 January 2025 to 5 April 2025) (3/4 x £14,000) | 10,500 |
| 2025/26 (6 April 2025 to 5 April 2026) ((1/4 x £14,000) + (11/12 x £92,000)) | 87,833 |
| 2026/27 (6 April 2026 to 5 April 2027) ((1/12 x £92,000) + (11/12 x £144,000)) | 139,667 |
| Total taxable trading profits for the first three tax years | 238,000 |
In this illustration, it can be seen that although the total taxable trading profits for the first three tax years is the same, the amount subject to tax in each of the years is different, such that the taxes paid in each of the tax years will differ depending on the choice of year end.
Conclusion
When considering the choice of year end, it may be necessary to work with monthly profit figures. In these circumstances you must first calculate the profits for the trading periods by reference to the monthly profits and then apply the basis of assessment rules in order to determine the taxable trading profits for the tax years.
Note: The unincorporated trader is considered further in:
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.
