Sole Trader Accounting Requirements

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Crusader

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I've read the revenue guides for income tax returns for sole traders and I just can't make sense of the timing and the periods of time for which I need to make a return.

Assuming the following, could someone please tell me what I should do regarding my tax return.

- Business started March 2007.
- Business year = March to Feb.
- No income tax paid to date.

For what preiod(s) of time do I need to make a return and what are the deadlines (some may be past, obviously). I'm having difficulty understanding how I reconcile the calendar year with our accounting year.

Many thanks
 
Your first set of accounts will be the 12 months ending 28th Feb 2008. You will be required to apportion 10/12ths of these profits and declare them in the tax year 2007. You will then be required to declare the 12 mths to 28/2/08 in 2008 return of income, 12 mths ending 28/2/09 in the 2009 return of income and so on.

Bear in mind that you are now will beyond the filing for 2007 (october 08) so there is the possibility of interest and surcharges for that year. 2008 should be filed by Octboer 2009.
 
Thanks Woodpark. I've asked this question a number of times and that's the first understandable reply I've ever received :)
 
Because your first year of trading ended only at the end of Feb 2008, you would not be expected to make 2007 returns by 31/10/08. Instead, both 2007 and 2008 returns are due by 31/10/09.
You should make a preliminary tax payment, as you will have some idea of what it might be. Otherwise, in October 2009 you are going to be paying tax liability for 2007 and 2008, also preliminary tax for 2009 year.
 
There are also special rules when it comes to commencement situations that may save you tax. These rules are quite complex. To summarise: If the actual profits for 2008 (calendar year) are lower than the profits to 28.2.08 then the difference can be used to reduce your 2009 assessable profit. If there are insufficient profits in 2009 to absorb this then the loss can be carried forwarded to subsequent years.
 
Looking into some issues with a family members sole trader business and found that he has not made any tax return for 07/08 (business started in june 07). Also no vat return has been registered. His company buys jobs as a franchise off a mother company for which he pays vat 21% and then he sells the job to a customer at a service vat of 13.5%. Looking for some advice as I need to get the business set up correctly before it all comes down around him. Can anyone give advice on;
1 whats best from the tax return point of view at this late stage?
2 whats best practice on the vat front ? - i am aware that the vat claim is to be for the difference between what he purchased the job at and what he sells it at as a service.
3 Will a trading account and profit & loss be enough ?
Thank you
 
simplyjoe said:
There are also special rules when it comes to commencement situations that may save you tax. These rules are quite complex. To summarise: If the actual profits for 2008 (calendar year) are lower than the profits to 28.2.08 then the difference can be used to reduce your 2009 assessable profit. If there are insufficient profits in 2009 to absorb this then the loss can be carried forwarded to subsequent years.
Click to expand...

I think this is the S66 Taxpayers Option. Why not just make the first period end 31st December 2007 and go with the calendar year thereafter?
 
For the first 3 years of business, complex “commencement
rules”, set out under section 66 TCA 1997 apply. In order to illustrate their complexity
we have set out the rules below:​
•​
Year 1 - Profits for the first year are taxable on an actual basis, i.e., the profits are
assessed from the date of commencement to the following 31 December.​

•​
Year 2 - In the second year, the following rules apply:
a) If there is only one set of accounts made up to a date within that year and these
accounts are for 12 months, the full profits for the 12 months are assessed.
b) If accounts are for less than one year or there is more than one set of accounts
made up to a date or dates within that tax year, the full profits of the 12 months
ending on the later of those dates are assessed.
c) In any other case the actual profits are assessed.​

•​
Year 3 - In the third year the profits assessed to tax are those arising in the
accounting period ending in that year. A reduction may be made to profits
assessed in the third year to the extent that the profits assessed in year 2 exceeded
the actual profits arising in year 2.
These rules, even at first glance, appear complex. The rules break the link with the
accruals accounting concept which strives to match costs with the revenues generated by
incurring those costs. The commencement rules can also place a strain on the cash-flow
of new enterprises.​

 
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