Basis of assessment ― closing years

Produced by Tolley
  • (Updated for Autumn Budget 2021)

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Basis of assessment ― closing years
  • The closing year rules
  • Overlap profits
  • Computing overlap profit
  • Checking overlap profit
  • Transitional overlap profit

Basis of assessment ― closing years

The rules on closing years apply to unincorporated businesses. These rules apply equally to businesses using the simplified cash basis. See the Eligibility for the simplified cash basis guidance note.

See also Simon’s Taxes B4.105.

The Government is introducing a reform of basis periods for unincorporated trading businesses whereby businesses will be taxed on the profits arising in a tax year, and therefore the closing year rules will be abolished and overlap profits will be relieved in full in the transitional year of 2023/24. The new rules will come fully into force from 6 April 2024, see the Basis of assessment ― normal years guidance note for a summary of the changes.

The closing year rules

These rules apply when a trader ceases to trade.

Closing year rules are much simpler than the opening year rules. In the penultimate year (ie the tax year prior to the cessation of the trade), the normal current year basis rules apply, ie taxing profits of the 12-month accounting period ending in the penultimate tax year.

In the final tax year, the profits arising in the period from the day after the previous basis period ended to the date of cessation are taxed. In other words, on cessation of trade, any remaining profits are taxed, making

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