ExpertEasy2 marksMultiple Choice
ACCA · Question 16 · Income Tax Liabilities
Section B: Case 1 - Vanguard Robotics
Scenario: Vanguard Robotics was run as a sole trade by Liam, developing specialized robotic arms for manufacturing. Liam prepared accounts to 31 December each year. On 30 September 2023, Liam ceased trading as a sole trader and transferred the entire business as a going concern to a newly formed company, Vanguard Robotics Ltd, in exchange for shares.
Question: What is the basis period for Liam's final tax year of trading (2023/24) as a sole trader?
Section B: Case 1 - Vanguard Robotics
Scenario: Vanguard Robotics was run as a sole trade by Liam, developing specialized robotic arms for manufacturing. Liam prepared accounts to 31 December each year. On 30 September 2023, Liam ceased trading as a sole trader and transferred the entire business as a going concern to a newly formed company, Vanguard Robotics Ltd, in exchange for shares.
Question: What is the basis period for Liam's final tax year of trading (2023/24) as a sole trader?
Answer options:
A.
1 January 2023 to 30 September 2023
B.
6 April 2023 to 30 September 2023
C.
1 January 2023 to 31 December 2023
D.
1 October 2022 to 30 September 2023
How to approach this question
Apply the cessation rules for basis periods: The final basis period runs from the end of the basis period for the previous tax year up to the date of cessation.
Full Answer
A.1 January 2023 to 30 September 2023✓ Correct
Under the standard basis period rules (prior to the 23/24 transitional year rules fully taking effect for ongoing businesses, but cessation rules remain clear), in the tax year of cessation, the basis period begins immediately after the end of the basis period for the previous tax year and ends on the date of cessation. The previous basis period ended on 31 December 2022. Therefore, the final basis period is 1 January 2023 to 30 September 2023.
Common mistakes
Trying to apply the transitional rules for ongoing businesses to a cessation scenario.
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