Malcolm Finney looks at the options for sole traders when choosing an accounting date for the business.
Unincorporated business owners (more commonly referred to as sole traders) are free to select the date to which their accounts are to be prepared.
It may be thought that irrespective of the date chosen the income tax consequences would be the same. However, as will be seen below, this is not the case.
Basic rule
The basic rule is that trading profits are charged to income tax on a ‘current year’ basis, which means that the trading profits for a tax year are those of the accounting year ending in that tax year.
So, for example, for the tax year 2020/21 the relevant taxable profits are those of the accounting year ending between 6 April 2020 and 5 April 2021. This basic rule does not, however, apply to the first
