Trading profit is split on a time basis. Almost nothing else in the computation follows the same rule, and mixing them up is where most errors in this area actually happen.
Zazentax Corporation Tax Series · Updated July 2026 · Reading time: about 7 minutes
Previous parts of this series covered why a long period of account is split into two accounting periods, and how capital allowances are recalculated separately for each. The remaining items in the computation, loan relationship income, property income, chargeable gains, qualifying charitable donations, and dividends, each follow their own allocation basis. None of them are simply time apportioned across the whole period the way trading profit is, and treating them as if they were is a reliable way to misstate taxable total profits for both accounting periods at once.
Loan Relationship and Property Income: Accruals, but Only for the Period the Source Actually Existed
Non-trading loan relationship profits, principally interest, and UK property business income are both recognised on an accruals basis and are time apportioned between the two accounting periods on that basis, which for a source that existed throughout the whole period of account is straightforward. The complication arises where the source was acquired partway through the period of account. In that case the income is apportioned over the period during which it actually arose, not spread evenly across the whole period of account as if it had existed from day one. A rental property bought six months into an eighteen month period of account, for instance, generates income across nine months only, and that nine month figure is what gets split between the two accounting periods, not the income diluted across all eighteen.
Chargeable Gains: Allocated Wholly to the Accounting Period Containing the Disposal Date
A chargeable gain is not apportioned at all. It falls entirely into whichever accounting period contains the date of disposal, which for most assets is the date of a binding contract of sale and, for land, the date contracts are exchanged rather than the date of legal completion. A gain realised the day before an accounting period ends sits wholly in that period; realised the day after, it sits wholly in the next one, with no partial allocation either way.
Qualifying Charitable Donations: Allocated on the Date Paid
Qualifying charitable donations are deducted from taxable total profits on a strictly cash basis, allocated to whichever accounting period contains the actual date of payment, regardless of when the obligation to pay arose or how the donation was accrued in the statutory accounts. A company making one donation before the split point and a second afterwards will deduct one in each accounting period, and there is no mechanism to smooth an annual donation evenly across a period of account that has been split.
Dividends Received: Allocated by Receipt Date, Relevant Only to the Rate Test
Dividend income is not part of taxable total profits at all, but it is added back to produce augmented profits, the figure tested against the profit thresholds to decide whether the small profits rate, marginal relief, or the main rate applies. Dividends are allocated to whichever accounting period they were actually received in, and only affect that period’s rate determination; they never affect the other accounting period’s augmented profits.
A Worked Example Bringing All Four Together
Oakridge Trading Ltd prepares a fifteen month period of account running from 1 January 2026 to 31 March 2027, split into a first accounting period of the full twelve months to 31 December 2026 and a second accounting period of the remaining three months to 31 March 2027. Adjusted trading profit for the whole period, already net of capital allowances, is £600,000, giving £480,000 for the first accounting period and £120,000 for the second on the usual twelve fifteenths and three fifteenths split.
A rental property is acquired on 1 July 2026 at an annual rent of £24,000, so it has existed for nine months by the end of the period of account, generating £18,000 of rental income across that nine month window. Six of those months, July to December 2026, fall in the first accounting period, giving it £12,000; the remaining three months, January to March 2027, fall in the second, giving it £6,000. Bank interest of £9,000 accrues evenly across the entire fifteen month period, since the source existed from day one, and is simply split twelve fifteenths and three fifteenths: £7,200 to the first accounting period and £1,800 to the second.
A chargeable gain of £60,000 arises on a disposal dated 10 November 2026, falling wholly within the first accounting period. Qualifying charitable donations of £5,000 are paid on 1 June 2026, within the first accounting period, and £6,000 on 1 February 2027, within the second. A dividend of £4,000 from an unconnected company is received on 15 January 2027, within the second accounting period.
Taxable total profits for the first accounting period are £480,000 plus £12,000 plus £7,200 plus £60,000, less £5,000, which comes to £554,200, with augmented profits identical since no dividend falls in this period. Taxable total profits for the second accounting period are £120,000 plus £6,000 plus £1,800, less £6,000, which comes to £121,800, with augmented profits of £125,800 once the £4,000 dividend is added back for the rate test.
Action required: Build a single allocation schedule listing every income stream, gain, donation, and dividend against its correct basis, disposal date, payment date, or receipt date, before touching either computation. Working through the two accounting periods separately from the outset, without that schedule, is where sources acquired mid period and gains near the split date most often end up in the wrong column.
Key Takeaways
- Loan relationship and property income are time apportioned on an accruals basis, but only over the period a source actually existed, not the whole period of account if it was acquired partway through.
- Chargeable gains are allocated wholly to the accounting period containing the disposal date, never apportioned.
- Qualifying charitable donations are allocated wholly to the accounting period containing the payment date, on a cash basis.
- Dividends are allocated by receipt date and affect only that accounting period’s augmented profits for the rate test, never taxable total profits directly.
- Four different allocation bases operate side by side in the same computation; only trading profit itself is time apportioned across the whole period.
Working Through a Long Period of Account With Mixed Income Sources?
Zazentax builds the full allocation schedule, applies the correct basis to every income stream, gain, donation, and dividend, and prepares both accounting periods correctly from a single set of accounts.
Get your long period of account allocated correctly by Zazentax.
