I READ your article ('Conquering the Dragon of Tax Law' 16 April) and believe a fundamental issue has been overlooked.
The Inland Revenue has gone to considerable lengths to ensure the current year basis of assessment taxpayers will pay tax on the full amount of profits during their career irrespective of their accounting date.
Whilst Guy Rigby's article is correct in showing that there may be a substantial tax bill in the final year for a taxpayer on a 30 April year end, he has overlooked the cash flow benefit to the taxpayer. In the example quoted, and using existing tax rates, the individual concerned would have paid tax of over £73,000 earlier had he been on a 31 March year end in comparison to a 30 April year end. I'd prefer this cash in my or my firm's bank account.
I should, however, add two additional caveats. Where profits decline there will be a cashflow disadvantage remaining on a 30 April year end in comparison to a 31 March year end. And if tax rates are higher when the deferred liability is crystallised the additional tax may outweigh the cash-flow benefit. The choice of accounting date must be considered on a case-by-case basis.
Professional Partnership Group.