Every business needs to have a year-end i.e. a period up to which you make your accounts and other returns.
It’s often assumed that this is automatically the 5th April as that’s when all self-assessment returns are made up to. This however is not the case.
In most cases you can choose whatever year-end is convenient to you and makes sense both commercially and fiscally.
So how do you decide when to set your year-end?
1. The year should be convenient to you
For example if you carry stock you’ll need to do a stock count at the year end, so it may be best to choose the month when your stock is usually at its lowest.
Another matter that should be taken into account is the time taken and the inconvenience caused by having to prepare annual accounts and, if necessary, undergo an audit. You don’t want this during your busiest period.
Does everybody else in your industry have a 31st September year end? Would that therefore be sensible if competitors are comparing results? Does the industry as a whole report on participants results and therefore do you always want to be out of sync?
3. The tax payment date
For a corporate entity the tax has to be paid within nine months and one day of the year end. You will also be aware that personal tax bills, if you are not totally under PAYE, have to be paid on the 31st July and the 31st January each year.
Therefore if your company has a year end of the 31st March, not only will your company have to pay its tax on the 1st of January, you will also have to pay your personal tax over and above PAYE etc by the 31st January – which may put undue pressure on your cashflow.
So think about the year end in terms of when the tax is due and choose a date that makes sense for your cash flow.
4. Can you change?
With a corporate entity your year-end will automatically be the month in which you incorporated e.g. if incorporated in June, the year-end will automatically be set at the 30th June.
The directors are able to change the year end by passing the relevant resolution and completing the relevant forms for filing with the Registrar of Companies – there is no filing fee.
However to stop continual moving of deadlines etc. you are only able to change a year end, unless specific circumstances prevail, once every five years.
For a newly incorporated business the first period can be an extended period and therefore you could change your year to a few months later. The maximum period of any accounting period is eighteen months.
Note; should you have an accounting period of more than twelve months you will need, at the time of submitting your corporation tax returns to submit two tax returns as only a corporation tax return can be for a maximum of twelve months only.
5. Your VAT quarters
To make your life easier consider when your VAT quarters are made up to (if you are VAT registered). Although you will be told by HM Revenue and Customs when your VAT quarter end is (the basis that you have not applied for monthly VAT returns) it’s possible to change the VAT date by writing to HM Revenue and Customs and asking them to bring your VAT quarter in line with your accounting period.
You will then need to do either a longer period to bring it in line and/or a shorter period. This small piece of administration is well worth the effort as it saves time in the long run.
6. The rest of the group
One of the reasons you can change your year-end more than once in five years is if you are joining a group and the other company year-ends are different, i.e. you may want to bring your company’s year-end in line with other group of companies.
Personally I believe there is very little point in having different year-ends within associated companies and/or groups to allow inter-company trading and movement of profits. HM Revenue and Customs are very aware of this and therefore, in my view, it only heightens the level of attention that your accounts will be given!
So whether you are just starting or your business is well established, it is worth considering if your year-end suits you or whether a change of date would be better for you, your business and your cash flow.
Carol Cheesman is the principal of Cheesmans Accountants.
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