Confused by Company Tax Return for the first year of trading

[tbon]

Last year we formed a limited company on 16/01/2023. Recently, I've received two notices from HMRC to file a Company Tax Return:

• one for the period 16/01/2023 - 15/01/2024
• the other for the period 16/01/2024 - 31/01/2024

Both notices say "Your Company Tax Return is due by 31 January 2025".

I'm confused by this, as I expected to have to file one tax return for the period 16/01/2023 - 31/01/2024. Is this normal, and I really have to file two tax returns for the first year?

If so, should I expect an accountant charge the full price for two tax returns? (All my bookkeeping is done and up to date in FreeAgent.)

Can someone please help me understand why HMRC is splitting my first year into two accounts?

 

[David Griffiths]

It's because a corporation tax accounting period cannot exceed one year. The first period is therefore for one year and the other to the end of the financial year. You would normally prepare a single set of accounts and apportion the income in the tax computations.

HMRC always seem to work on the basis that the company actually started to trade on the date of incorporation. If that is correct, then you are left with the two accounting periods that they have cited. However, if there was no trade immediately on incorporation, then the first corporation tax period would start on the day that trade commenced, and would end either one year after that or on the annual accounts date. Speak to your accountant about it and they can notify HMRC if necessary.

 

[Daybooks]

As stated above your first set of accounts is actually for longer than one year. The tax return is for one year only - hence the requirement for two for this first period. Personally I wouldn't charge for two tax returns in this instance as it is one set of accounts and the tax software would carry out the apportionments.

It might seem obvious (but experience tells me differently) the amount of tax to pay will be the sum of the two returns and not just the latter one.

 

[tbon]

HMRC always seem to work on the basis that the company actually started to trade on the date of incorporation...

What does it mean to start trading? Is it the date of the first transaction on the company's bank account? If so, that happened on 07/02/2023 when the directors transferred some money to the company's bank account (director's loan).

 

[Scalloway]

I would say the company started trading the day it made its first sale.

 

[David Griffiths]

The date of commencement of trade will depend on a number of factors. To take the example of a shop, the trade would commence when you open your doors for business, even if you don't sell anything on that day, or for a few days afterwards.

If it is a manufacturing business, then the trade starts the day that you start production, and again the date of sale is not a factor.

In your case the information provided suggests that it cannot have been before 7/2/2023, and might have been some time later. Given that that date is after 1 February, it would mean that the company's first corporation tax accounting period would start on or after 7 Feb and would end on 31 January 2024. You need to advise HMRC of this and ask them to amend their request for CT returns accordingly. Don't hold your breath waiting for a reply.

 

[Newchodge]

Is there any reason not to send a first HMRC return for 16/01/2023 to 31/01/2023. for nil, as nothing happened, and then fo annual returns from 01/02/2023 to 31/01/2024?

 

[David Griffiths]

Is there any reason not to send a first HMRC return for 16/01/2023 to 31/01/2023. for nil, as nothing happened, and then fo annual returns from 01/02/2023 to 31/01/2024?

Strictly you'd need to actually prepare accounts to 31/01/23 to trigger the end of the CT accounting period on 31/01. Much easier to simply report the actual date of commencement of trade which would wipe out the first return altogether