Sole trader accounting period/cessation

caoimhinb

Hi,

I previously had a sole trader business in Ireland which ceased in August 2006. The accounting period for the company ran from 1st April to 31st of March each year. Therefore in the 2006 tax year the accounting period was from 1 April 2005 to 31 March 2006. (I forget why the accountant did this, made sense at the time)

Since the company ceased trading later in 2006, would the additional income be assessable in the 2006 tax year, or is it assessed as 2007 tax year?

It seems confusing to me that the company ceased in 2006 but would be taxed in the 2007 tax year. But also it would seem strange if in one single tax year I was paying tax for an accounting period greater than 12 months (ie 1 April 2005 to 31 August 2006)

Maybe the confusing is arising from 2007 Form 11 which says 'If this source of income ceased during the year 2007 state the date of cessation (dd/mm/yyyy)'. Unclear as to whether 'the year 2007' refers to tax year or accounting period.

Maybe another way to look at it... should the final accounts of the company have an end date of August 2006 (making the final period 4 months long), or have an end date of March 31 2007, as normal?

Thanks.

pigeonbutler

caoimhinb wrote: »

Hi,

I previously had a sole trader business in Ireland which ceased in August 2006. The accounting period for the company ran from 1st April to 31st of March each year. Therefore in the 2006 tax year the accounting period was from 1 April 2005 to 31 March 2006. (I forget why the accountant did this, made sense at the time)

Since the company ceased trading later in 2006, would the additional income be assessable in the 2006 tax year, or is it assessed as 2007 tax year?

It seems confusing to me that the company ceased in 2006 but would be taxed in the 2007 tax year. But also it would seem strange if in one single tax year I was paying tax for an accounting period greater than 12 months (ie 1 April 2005 to 31 August 2006)

Maybe the confusing is arising from 2007 Form 11 which says 'If this source of income ceased during the year 2007 state the date of cessation (dd/mm/yyyy)'. Unclear as to whether 'the year 2007' refers to tax year or accounting period.

Maybe another way to look at it... should the final accounts of the company have an end date of August 2006 (making the final period 4 months long), or have an end date of March 31 2007, as normal?

Thanks.

Can you clarify that this is an unincorporated business that you operated as a sole trader? Your liberal use of the word company makes it difficult to be clear on what the issues are.

To answer your final question, yes the accounts should have an end date of August 2006 (presuming this is when trade ceased). However the treatment of cessation of a trade is a small bit complex so you'd be as well to get some advice on how the profits should be apportioned in order to make sure you're getting things right.

whatawaster

caoimhinb wrote: »

Hi,

I previously had a sole trader business in Ireland which ceased in August 2006. The accounting period for the company ran from 1st April to 31st of March each year. Therefore in the 2006 tax year the accounting period was from 1 April 2005 to 31 March 2006. (I forget why the accountant did this, made sense at the time)

Since the company ceased trading later in 2006, would the additional income be assessable in the 2006 tax year, or is it assessed as 2007 tax year?

It seems confusing to me that the company ceased in 2006 but would be taxed in the 2007 tax year. But also it would seem strange if in one single tax year I was paying tax for an accounting period greater than 12 months (ie 1 April 2005 to 31 August 2006)

Maybe the confusing is arising from 2007 Form 11 which says 'If this source of income ceased during the year 2007 state the date of cessation (dd/mm/yyyy)'. Unclear as to whether 'the year 2007' refers to tax year or accounting period.

Maybe another way to look at it... should the final accounts of the company have an end date of August 2006 (making the final period 4 months long), or have an end date of March 31 2007, as normal?

Thanks.

if you are unsure about this then you definitely need a good accountant. Cessation rules require you to reassess the income of the last two years also and can be quite complicated. I'm an almost qualified accountant and i can't remember these rules off the top of my head.
Get professional advice.

caoimhinb

Yes, sorry, it is an unincorporated small sole trader business, no vat/employees.

caoimhinb

A bit extra info: I am no longer in Ireland, resident in 2006 and non resident for 2007.

The disparity between tax year and accounting period is what has me a bit confused. I ceased trading during my April 2006- March 2007 accounting period, normally this would be taxed for the 2007 year of assessment.

But if the final accounting period actually ended in August 2006 then things get odd. Would I have to readjust all my accounting periods backwards to the start of business, so that they are all starting in January???

Legend100

Hi, You put yourself in a tricky situation overall to be honest.

You wouldn't have to adjust previous periods so that is a bit of good news.

Looking at your dates, you did a 12 month set of a/c ending in march 06 and then ceased in Aug 06. You are right that this income is taxable. You should have either done a 5 month set of a/cs from april 06 - aug 06 or originally gone with a 17 months set of a/cs from april 05 to aug 06.

since im assuming you have your 2006 tax return sent in with the figures from the 31st March 2006 year end a/cs you will need to do a bit of work as you are very late with the proper return. if your original return was in on time, you might avoid the interest.

Firstly, there is no 2007 liablitity and you cannot simply set up a set of a/cs to march 07 to capture the untaxed income. You need to prepare a 5 month set of a/cs from april 06 to aug 06. It is going to get quite tricky as there is specific treatment of cessation a/cs.

Your tax liability for 2006 (your cessation year) is from the tax year 01/01/2006 - date in aug you ceased.

This may be confusing as it is quite a tricky area. You do what is called a prior year review on your taxable income. I would advise asking your accountant about this. You need to eaxmine your taxable income from two different angles to see if you owe the revenue money or not.

Step one: You have a 12 month set of a/cs ending in march 06 and will have to do a 5 month ending in aug 06. Your taxable income for the TAX YEAR 2006 is 3/12 of the March 06 a/cs + the income from the 5 month set ending aug 06.

Step two: Prior year review of 2005 - You add 3/12 of the taxable income for the a/cs ending march 2005 and 9 /12 of the a/cs ending march 06. if this figure is greater than the amount you assesed back in the TAX YEAR 2005, then it has to become your new assessable income for 2005 and you will owe the revenue a balance. If it , on the other hand is less, you lose out im afraid.

As i said this is a fairly tricky area, i would advise talking to your accountant. one main point is tho that it has nothing to do with 2007. You don't even have to do a return if you ceased with the Revenue .ie let them know you were ceasing back in 2006