Year of Cessation

The year of cessation is the year a business stops trading and closes down its
operations. At such point, any taxable profits not yet subjected to tax will have to be
subjected to tax in the tax year the business ceases to trade.

Once the business has been trading over several years, the current year basis period
would have applied to the previous tax year and the years before, so the final tax year
assesses any taxable profits not yet subjected to tax and this will be subjected to tax in
the tax year the business stops trading.

This could result in a short tax period (less than 12 months) or a long tax period (more
than 12 months) depending on the tax year the company’s date of cessation falls into.
You will need to identify the government tax year in which the business ceases trade
and the last accounting period up to the closing date will be immediately subjected to
tax in that year. If the next tax year for the business would have been that year under
the current year basis (that is, if the business wasn’t closing down), then, this will
result in a long accounting period for tax purposes and vice versa.

This means that the company’s profits for such tax year will be subjected to tax and
the additional profits from that date to the day of cessation will also need to be
subjected to tax immediately in that same tax year. For example, if the company
normally prepares accounts to 30 September, and it closes down on 31 December
2021, you will notice that the last full year will be within 2021/22 and the day of
cessation is also in the same government tax year – 2021/22, so both profit amounts
will need to be taxed in 2021/22, resulting in a long accounting period.

Overlap profits

Where overlap profits occur when the individual initially started trading, relief for the
overlap of profits is given by deducting any overlap amounts from the final assessment
when the individual ceases to trade.