Section 66 Special basis at commencement of trade or profession

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(1) Where a trade or profession has been set up and commenced within the year of assessment, the computation of the profits or gains chargeable under Case I or II of Schedule D shall be made either on the full amount of the profits or gains arising in the year of assessment or according to the average of such period, not being greater than one year, as the case may require and as may be directed by the inspector.

In my first year of trading, what am I taxed on?

(1) When you commence to carry on a trade or profession, your tax assessment for your first tax year is based on your actual profits in that year....

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(2) Any person chargeable with income tax in respect of the profits or gains of any trade or profession which has been set up and commenced within one year preceding the year of assessment shall be charged-

(a) if only one account was made up to a date within the year of assessment and that account was for a period of one year, on the full amount of the profits or gains of the year ending on that date,

(b) if-

(i) an account, other than an account to which paragraph (a) applies, was made up to a date in the year of assessment or more accounts than one were made up to dates in the year of assessment, and

(ii) the trade or profession was set up and commenced not less than 12 months before the first-mentioned date in subparagraph (i) or, as the case may be, the last of the second-mentioned dates in that subparagraph,

on the full amount of the profits or gains of the year ending on that first-mentioned date or, as the case may be, the last of those second-mentioned dates, or

Amendments

Subs (2) substituted by Finance Act 1998 section 8 for 1998-99 and later tax years.

In my second year of trading, what am I taxed on?

(2) Once you have begun to trade, the assessment for your second tax year is based on:...

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(3) Any person chargeable with income tax in respect of the profits or gains of any trade or profession which has been set up and commenced within the year next before the year preceding the year of assessment shall be entitled, [on including a claim in that behalf with the return required under section 951 for the year of assessment]¹, to have the assessment reduced by the amount (if any) by which the amount of the assessment for the year preceding the year of assessment exceeds the full amount of the profits or gains of that preceding year; but, where the excess is greater than the amount of the assessment, the difference between the excess and the amount of the assessment shall be treated for the purposes of section 382 as if it were a loss sustained in a trade in that year of assessment.

Amendments

1 Substituted by Finance Act 2001 section 78(2)(a) for 2001 and later tax years, and for accounting periods ending on or after 1 April 2001.

In my third year of trading, what am I taxed on?

(3) The tax charge for your third tax year is based on the profits of the latest 12 month accounting period ending in that year (section 65(2))....

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(3A) As respects the year of assessment 2001, subsection (2) shall apply as if in both paragraph (a) and paragraph (b) of that subsection "74 per cent of the full amount of the profits or gains" were substituted for "the full amount of the profits or gains".

Amendments

Subs (3A) inserted by Finance Act 2001 section 77(2) and Schedule 2 para 3.

What if my second tax year is 2001?

(3A) If the short tax year 2001 is your second tax year, your assessment is based on:...

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(3B) As respects the year of assessment 2002-

(a) subsection (2) shall apply as if "within the period from 6 April 2001 to 31 December 2001" were substituted for "within one year preceding the year of assessment", and

(b) subsection (3) shall apply as if "within the period from 6 April 2000 to 5 April 2001" were substituted for "within the year next before the year preceding the year of assessment".

Amendments

Subs (3B) inserted by Finance Act 2001 section 77(2) and Schedule 2 para 3.

What if my second or third tax year is 2002?

(3B) If the tax year 2002 is your second tax year, the short tax year 2001 is treated as your first tax year for the purposes of the commencement rules in (2)....

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(3C) As respects the year of assessment 2003, subsection (3) shall apply as if "within the period from 6 April 2001 to 31 December 2001" were substituted for "within the year next before the year preceding the year of assessment".

Amendments

Subs (3C) inserted by Finance Act 2001 section 77(2) and Schedule 2 para 3.

What if my third tax year is 2003?

(3C) If the tax year 2003 is your third tax year, the short tax year 2001 is treated as your first tax year for the purposes of the second year excess rules in (3).