Current-Year Basis of Assessment

The current-year basis is an accounting principle used for tax assessment in the UK, wherein profits are taxed in a fiscal year based on the profits arising in the accounts for the period ending within that same tax year.
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Current-Year Basis of Assessment

Definition

The current-year basis of assessment is a method employed in the UK for tax purposes, where the profits are taxed during a fiscal year based on the profits recorded in accounts for the period ending within that same tax year. This ensures that taxes paid are as close as possible to the actual economic conditions and financial performance reported in the relevant period’s financial statements.

Examples

  1. Example 1: Self-Employed Individual John is self-employed and has a fiscal year running from April 1st to March 31st. For the fiscal year 2023/24, he will be assessed and taxed on the profits reported in his accounts for the year ending March 31, 2023.

  2. Example 2: Small Business ABC Ltd. operates with an accounting period from January 1st to December 31st. For the tax year 2023/24, they would be taxed based on the profits made in the accounting period ending December 31, 2022.

Frequently Asked Questions

Q: How does the current-year basis differ from the preceding-year basis? A: The current-year basis taxes profits in the same fiscal year as the period in which they are reported, while the preceding-year basis taxed profits in the subsequent fiscal year.

Q: What is a fiscal year in the UK, and how does it impact the current-year basis? A: The fiscal year in the UK runs from April 6th to April 5th of the following year. Under the current-year basis, profits made during this period are assessed and taxed within the same fiscal year.

Q: Why is the current-year basis preferred over other methods? A: It provides a more accurate reflection of the economic activities and financial performance for the taxation year, making the taxation process fairer and more current.

  • Fiscal Year: The 12-month period used by the government for accounting and budget purposes, running from April 6th to April 5th in the UK.
  • Preceding-Year Basis: An earlier system where profits were taxed in the fiscal year following the year in which they were earned.
  • Basis of Assessment: The method by which profits are allocated to a particular fiscal year for tax purposes.

Online Resources

Suggested Books for Further Studies

  1. “Taxation: Policy and Practice” by Andrew Lymer and Lynne Oats
  2. “UK Taxation: A Simplified Guide for Students” by Mark Hunt
  3. “Principles of Taxation for Business and Investment Planning” by Sally M. Jones and Shelley C. Rhoades-Catanach
  4. “Advanced Taxation (A Taxation Study Text)” by The Association of Accounting Technicians

Accounting Basics: “Current-Year Basis of Assessment” Fundamentals Quiz

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Curriculum Vitae (CV)
Current-Value Accounting