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Question 4a iii

Your firm has been asked to provide advice to two unrelated clients, Piquet and Buraco. Piquet, an unincorporated sole trader, requires advice on a proposed change to the date to which he prepares his accounts. Buraco requires advice on his residence status and the remittance basis.

(a) Piquet:
– Began trading as an unincorporated sole trader on 1 January 2007.
– Has always prepared accounts to 31 October.
– Has overlap profits of £15,000 for a five-month overlap period.
– Is planning to change his accounting date to 28 February 2015.

Actual and budgeted tax adjusted trading profit of Piquet’s business:

Profit per month Profit for the period
£ £
Year ended 31 October 2013 4,500 54,000
16 months ending 28 February 2015 5,875 94,000
Year ending 28 February 2016 7,333 88,000
Year ending 28 February 2017 9,000 108,000

Alternative choice of accounting date:
– Piquet is also considering a year end of 30 April.
– To achieve this, Piquet would prepare accounts for the 18 months ending 30 April 2015 and annually thereafter.

Required:
(iii) Identify and explain TWO advantages for Piquet of using a year end of 30 April rather than 28 February. (4 marks)