| Self employed business in the UK is required to | | | | accounts are required to be submitted by the |
| produce a set of financial accounts for a 12 | | | | submission deadline of 31 January the following |
| month trading period. The format of the accounts | | | | year. Earlier submission is recommended as by |
| is the personal decision of the proprietor and can | | | | submitting the final accounts and tax returns |
| be a full set of annual accounts including profit and | | | | online by 31 October each year the inland revenue |
| loss account and balance sheet including using | | | | will calculate the income tax and national insurance |
| control accounts and cash and bank records and | | | | payable. |
| the self assessment tax return. | | | | When a self employed business has been in |
| An appropriate accounting system for many self | | | | business for two or three years and has chosen |
| employed business would not be to prepare a full | | | | a different 12 month accounting period to the |
| set of annual accounts but instead to prepare a | | | | financial tax year the 12 month tax is calculated |
| simple income and expenditure account. Preparing | | | | according to a basis period. Up until that point the |
| an income and expenditure account allows a much | | | | accounts may be subject to apportionment to |
| simpler accounting or bookkeeping system where | | | | calculate the tax due. |
| simple accounting software can be used. | | | | The basis period under which the business tax is |
| The objective of any bookkeeping software being | | | | calculated is the 12 month accounting period |
| to maintain accurate financial records and produce | | | | ending in the specific tax year. A business which |
| the accounting records and totals required to | | | | has a 12 month trading period ending 31 |
| complete the inland revenue self assessment tax | | | | December 2007 would be taxed under the basis |
| return each year. Financial control is very | | | | period 2007 to 2008 being the basis period 6 April |
| important and the bookkeeping software should | | | | 2007 to 5 April 2008. The same rules apply if the |
| also produce regular financial statements showing | | | | accounting periods are shorter or longer than the |
| the profit and loss of the business throughout the | | | | standard 12 month period. |
| accounting trading periods. | | | | If the accounting date is changed by a sole trader |
| The financial tax year varies depending upon | | | | the inland revenue are informed of the change on |
| which country business is conducted. In the US | | | | the self assessment tax return and the re3asons |
| accounts are prepared during an accounting period | | | | for the change. If as a result the self assessment |
| from 1 January to 31 December each year. In the | | | | tax return arrives late the tax will be assessed on |
| UK the standard financial year adopted by the | | | | the previous basis period. |
| inland revenue is from 6 April each year to the 5 | | | | Changing an accounting date that overlaps two |
| April the following year. | | | | basis years results in the business being taxed |
| In the UK tax rules are set for each financial year | | | | twice for the same accounting profit as the |
| and by adopting the standard tax year a small | | | | business would be taxed under both basis years. |
| business can benefit by preparing the financial | | | | The extra tax paid can be highly unwelcome but |
| accounts under a single set of tax rules and | | | | can be reclaimed at a later date through the self |
| preparing the self assessment tax return | | | | assessment tax return. |
| accordingly. Adopting a different financial period | | | | The penalty for late submission of the self |
| involves straddling the official tax year and more | | | | assessment tax return in the UK is 100 pounds |
| than one set of tax rules might be applicable to | | | | and interest is also charged on any outstanding |
| the tax calculation resulting from the net profit | | | | income tax and national insurance from the first |
| being declared. | | | | day after submission was due. |
| After choosing the April to April financial tax year | | | | |