You may think that all sole traders and partnerships automatically have a 5th April year end as they are taxed on a personal tax basis and they all complete self-assessment returns made up to 5 April. This however is not the case – within certain parameters you can choose whatever year end is convenient to you and makes sense both commercially and fiscally.
If you are a corporate body you can also choose your year end. The majority of companies within the UK have their year-end as 31 March being as close as possible to the 5th April and/or 31st December being the calendar year end. However neither of these dates are mandatory.
So what should you consider when choosing a year end? Carol Cheesman of Cheesmans Accountants has some advice:
1) The year should be convenient to you. For example not during your busiest period and not when your stock levels are at their highest (as you have to count and value all the stock).
2) Commerciality: Does everybody else in your industry have a 31st October 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) Tax payment dates are key in deciding a year end for a corporate entity, but less so for an unincorporated entity. For a corporate entity the tax has to be paid within nine months and one day of the year end i.e. If you have a 31st March year end your corporation tax has to be paid by the 1st January following. Is this a good time in terms of cash flow and available funds?
4) With a corporate your year end will automatically be the month in which you incorporated. 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.
5) When starting a business cash flow is normally of paramount importance and therefore you may not want to incur the cost of external accountants, auditors etc in the preparation of accounts straight away. Therefore you may wish to extend the accounting period. The maximum period of any accounting period is eighteen months.
6) If 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. Only one corporation tax return can be for a maximum of twelve months.
7) A further consideration is your VAT quarters. Although you will be told by HM Revenue and Customs when your VAT quarter end is, you can, if necessary, write to them to ask them to bring your VAT quarter in line with your accounting period – this can really cut down on accounting work and is certainly worth considering.
So have a think about your year end – does it suit you and your company? Would a different date make life easier? Can you change it? By choosing a year end that suits you, it can make quite a bit of difference to both your workload and your cash flow.
This is a guest post from Carol Cheesman, Principal of Cheesmans Accountants.