Commencement, Change Of Accounting Date, And Cessation Under The Finance Act 2020


A company that commences business should apply the Preceding Year Basis (PYB) for all the years of assessment during commencement.

With respect to the first year of assessment, the basis period of a company shall be from the date it commences business to the end of its first accounting year-end date, irrespective of whether or not the company makes up its first accounts to that date. Where the first accounting period is longer than 12 months, the assessable profits for the first accounting period shall be ascertained on a pro-rata basis up to the indicated accounting year-end. Subsequent basis periods will be the 12-month after the previous accounting year-end date.


There are a number of reasons why a business may wish to change its accounting date and these reasons may include: 

  1. The need to synchronize the accounting date of a subsidiary with that of the holding company. 
  2. The convenience of stock-taking at a particular period of the year. 
  3. A business may take over the operation of another and as a result, wish to change the accounting date of the company taken over to that of its own. 

Where a change in accounting date takes place, be it a sole trader, partnership or a limited liability company, the provisions of section 29(2) of the CITA CAP C21 LFN 2004 as amended will apply. The Act provides that the Tax Authorities have the power to decide the basis of computing the tax liability for the year in which the change occurs and the two following years of assessment. The tax office will base its decision on the best advantage to the Tax Authority. It is important to note that the three relevant years to be considered are: 

  1. The assessment year in which the accounting date becomes different from the date of the earlier years.  This is known as the year when the change occurs. 
  2. The next two years of assessment following that in which the change occurs. 



In respect of cessation, the final tax year is from the beginning of the last accounting period to the date of cessation. The cessation returns are to be filed 6 months after the cessation date. Unlike under the old cessation rules, there will no longer be any gap in tax periods when filing cessation tax returns.

In practice, calculations are made on both the old dates and the new dates. The greater of these two aggregates will be the choice of the Tax Authority. 


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