Income tax is charged, in relation to business profits, on ‘the full amount of the profits of the tax year’ (ITTOIA 2005, s. 7(1)). Few businesses draw their accounts up to a date that coincides with the tax year end (i.e. to 5 April) and it would cause difficulties if every calculation had to apportion the profits of two different sets of accounts. The legislation therefore operates a system of ‘basis periods’ whereby the profits arising in a defined basis period are treated as if they were the profits of the tax year (s. 7(2)).


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