Question 4a ii
Your firm has been asked to provide advice to two unrelated clients, Piquet and Buraco. Piquet, an unincorporated sole trader, requires advice on a proposed change to the date to which he prepares his accounts. Buraco requires advice on his residence status and the remittance basis.
(a) Piquet:
– Began trading as an unincorporated sole trader on 1 January 2007.
– Has always prepared accounts to 31 October.
– Has overlap profits of £15,000 for a five-month overlap period.
– Is planning to change his accounting date to 28 February 2015.
Actual and budgeted tax adjusted trading profit of Piquet’s business:
| Profit per month | Profit for the period | |
|---|---|---|
| £ | £ | |
| Year ended 31 October 2013 | 4,500 | 54,000 |
| 16 months ending 28 February 2015 | 5,875 | 94,000 |
| Year ending 28 February 2016 | 7,333 | 88,000 |
| Year ending 28 February 2017 | 9,000 | 108,000 |
Alternative choice of accounting date:
– Piquet is also considering a year end of 30 April.
– To achieve this, Piquet would prepare accounts for the 18 months ending 30 April 2015 and annually thereafter.
Required:
(ii) On the assumption that Piquet changes his accounting date to 30 April, state the basis periods for the tax years 2014/15 and 2015/16 and the effect of this change on Piquet’s overlap profits. (3 marks)