Choose The Best Financial Year End For Your Business

Our clients pay low monthly fixed fees which includes advice on what the best financial year end could be for your specific business, and what the implications of changing it might be. Click the link above to see our fees or contact us for a quote using our quick enquiry form. You should obtain professional advice about your specific situation, however, we offer some general advice below.

Sole Traders and Partnerships

Making Tax Digital (MTD) for Income Tax will start from April 2024. This means you’ll need to keep your accounting records online, and submit quarterly reports to HMRC. To avoid complications, all of our sole trader and partnerships will need to have a 31st March or 5th April year end by 2024. For more details see here. Otherwise, read on!

You don’t have to make up accounts that follow the tax year end; it’s up to you what your financial year end is. If you are a sole trader or partner, your tax bill for a tax year is worked out by reference to the profits of the accounting year ending in that tax year.

For example, if your accounts run to 30th June 2016, these accounts will form the basis of your tax bill for the tax year 2016/17 (6/4/16 to 5/4/17). However when a business starts and finishes or changes its financial year end, there are slightly more complicated rules. Without going into all the details of these as it may well confuse or bore you, you’re going to have to accept what follows on trust for the time being.

If you have a new business starting that you expect to have lower profits in its first year than subsequent years, a financial year end early in the tax year such as 30th April will help keep your tax bills down in the early years.

In addition, having a year-end early in the tax year, helps give you more time to plan for your tax bills.

Changing Your Financial Year End Date Can Also Help

If you are an existing unincorporated business that has rising profits, a change to an accounts year end falling earlier in the tax year will lower your tax bills and if falling profits, a later financial year end will help. The calculations get a bit more complex, so just take it on trust again.

There are restrictions on how often you can change your financial year end but it can be worth crunching the numbers where you have rising or falling profits.

However, please note the MTD changes as explained above.

All Businesses Financial Year Ends

You should also consider if your business is seasonal. For example, if you sell lots around Christmas time, you may not want all those profits you make in December falling into your accounts by having a December year end. If you had a November year end, you could delay paying the tax for another year by just shifting your financial year end by one month. It’s also easier to do a stock take at a time when you’re not busy.

Company Financial Year Ends

A company’s initial year end date is set as the end of the month in which it was incorporated (plus 12 months). However, you can shorten the accounting period as often as you like, or lengthen it once every 5 years. It must be between 6 and 18 months long.

Apart from the seasonal factor mentioned above, the main factors of choosing a company’s financial year end are:

Cashflow

A company usually pays tax 9 months plus 1 day after its year end. If you have a time of year where cash is low e.g. November, you won’t want your tax bill falling due at the same time by having a January or February year end.

Tax Planning

With a 31st March or 5th April year end, dividends in the company accounts should match the dividends declared on the shareholders personal tax return. That keeps things easy.

However, let’s say you normally declare dividends towards the end of the financial year and have a 6th April year end. You could choose whether to pay those dividends before or after the personal tax year end of 5th April to determine whether they are included in the earlier or later year. If the later year is chosen, you can then also choose whether to pay them before or after the 6th April to determine whether they are included in the earlier or later year’s company accounts.

Deadlines

Company accounts need to be submitted to Companies House 9 months after the year end. If you usually leave things to the last minute, you may not want a year end (e.g. March) with a deadline at a busy or holiday time (e.g. December). However, using online accounting means we can do your accounts soon after your year end. See more benefits of online accounting and our range of online accounting services for more details.

How we can help you

Our clients pay low monthly fixed fees which include advice on what the best financial year end could be for your business, and what the implications of changing it might be. Click the link above to see our fees or contact us for a quote using our quick enquiry form.