218 / 462
GAZETTE
JU
LY/AUGUST
1991
3rd year - 1989/1990
12 months ending in preceding
tax year i.e. 12 months to
30 April 1988
£15,000
In respect of the second year the
taxpayer could elect to have the
assessment based on the actual
income for that financial year if it
is to his advantage. In the above
example the actual income for the
second year 1988/1989 is as
follows:
1 X £15,000
=
£1,250
12
11^ X £20 , 000 = £18,333
12
£19,583
It is clearly not in the taxpayers
interest in this situation to elect for
tax assessment on an actual year
basis.
In respect of the third year the
taxpayer can again elect for an
alternative form of assessment. If
the total assessable income for the
second and third years - when the
third year is calculated on a pre-
ceding year basis - exceeds the
total income for the second and
third years where both of these
years are calculated on an actual
basis then the tax-payer can elect
to have the difference subtracted
from the taxable income of the third
year calculated on a preceding year
basis.
In respect of the above example
the position would be as follows:
TABLE 1
The taxpayer in these circum-
stances will not make an election
for the alternative method of
assessment.
As, a result of the changes
brought about by the Finance Act,
1990, the method of calculating
the first year's income will remain
the sama The option allowed to the
tax-payer in his second financial
year has been revoked. The second
financial year will now be based on
the income for the first twelve
months of business. The third
year's assessment will be cal-
culated on a current rather than a
preceding year basis. In our
example the taxable income for the
third year will be calculated on the
accounts for the year ending 30th
of April 1989 rather than the year
ending 30th of April 1988. How-
ever a deduction is allowed for the
taxable income for the third year in
the amount by which the income
for the first twelve months of
business exceeds the income for
the actual second year.
Business commences on 1 May
1 9 9 0 : -
In cessation situations under the
old rules, an actual year rather than
a preceding year could also be used
as the basis of assessment but this
time at the option of the Revenue
rather than the taxpayer. For the
final year of business the taxable
income was based on the income
from the previous 6th of April to the
date of cessation. For example, if a
business ceased operating on the
31st of October, 1988, the taxable
income for 1988/1989 would be
the income of the business for the
period 6th April 1988 to 31
October 1988.
As regards the penultimate and
pre-penultimate years of trading,
the Revenue had the option to
assess the taxable income for
"[In cessation situations] as re-
gards the penultimate and pre-
penultimate years of trading . . .
where a cessation occurs after
6th of April 1991 the Revenue
will only have the option of
reviewing the penultimate year."
those years on the actual income
for those years rather than the
income arising in the preceding
years. As a consequence of the
new legislation where a cessation
occurs after the 6th of April, 1991
the Revenue will only have the
option of reviewing the penultimate
year.
Section 16 sets out transitional
provisions for this year i.e. 1990/
1991. For this financial year, people
chargeable to income tax under
Cases 1 and 2 of Schedule D can
add together the taxable income for
this year based on the old rules and
the taxable income for this year
based on the new rules and take
the average of these two amounts
as their taxable income for this
Profits for 12 months to 30 April 1988
15,000
Profits for 12 months to 30 April 1989
20,000
Profits for 12 months to 30 April 1990
25,000
Assessments
1st year - 1987/1988 Profits to 5/4/1988 11 X 15,000= 13,750
12
2nd year - 1988/1989 Profits to 30/4/1988
= 15,000
3rd year - 1989/1990 Profits to 30/4/1989
= 20,000
2nd Year -
1988/1989
Original
Assessment
Actual
Assessment
Assessment
Actual profit for year
15,000
19,583
3rd Year - 1989/1990
Assessment
Actual profit for year:
1 X 20,000
15,000
1,667
12
11 X 25,000
22,917
12
30,000
44,167
200