How do Financial Years work for companies?
For many companies, the incorporation date impacts the financial year end. Сompanies do not necessarily have to end their financial year on 31 December. Instead, they opt for the time frames that better correspond with their business cycles so that they do not have to deal with financial reporting in the midst of their busiest season.
For example, many universities choose to align their fiscal year with the academic year, so their fiscal year ends during the summer — universities are usually less busy during these months.
If your company brings the most of its revenue in a particular season, you probably prefer to end your fiscal year at the end of the busiest period, so it would be easier to understand your company’s financial performance over time.
For example, most retailers prefer to end their fiscal year on 31 January. During the holiday season, they are extremely busy, the sales grow, and there is a giant influx of revenue. With their financial year ending in January, they can better see how the business has done in the past year, and compare it with previous years.
It is important that your company defines your accounting year from the start and remains consistent with regards to the beginning and end of the financial year period to ensure that your taxes are paid on time.
Why should business owners know about the financial year?
Makes business sense for you
Your financial year is one year from your incorporation date. Sometimes you can change your financial year end date and sometimes it can be longer than 12 months. In any case, this choice should make business sense for you and be as consistent as possible. Once you have changed your financial end date, it has to stay the same for one year so have a good think about it before you do so.
Potential savings on accounting fees
Another reason for using a financial year is the potential savings on accounting and auditing fees. One way or another, many companies follow the calendar year for accounting and auditing purposes, so in December it could be difficult to find the tax and accounting professionals available or to negotiate their fees.
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How do I change my company’s financial year-end in the UK?
After reviewing the time frame that better corresponds with your business cycles, you can change your company’s year-end (also known as ‘accounting reference date’) to lengthen your company’s fiscal year for more than 12 months or shorten it to less than 12 months. However, you can only do this for the current financial year or the one before that.
Changing your company’s year-end also changes your deadlines for filing your accounts.
Here are the rules:
- Shorten your fiscal year as many times as you like.
- The minimum period to shorten it is by 1 day.
- The maximum to lengthen the company’s financial year is by 18 months, no more than once every 5 years.
- The exception to rule 3 above is if:
- Your company is in administration
- You are aligning your dates with your subsidiary or parent company
- You have been granted special permission from the Companies House
What is the tax year?
The UK Tax Year runs from 6 April to 5 April of the next year. Within this period, all of your income, whether earned or remitted in the UK, may be subject to tax. Anyone who is required to file a tax return will shortly be receiving a notice urging them to do this for the year that’s just ended.
Whether you owe tax or not, there are important dates that you need to always keep in mind. It’s a good idea to plan ahead as this can save you both time and money when filing your end of year tax returns.
You can claim up to 4 years previous tax if you have not claimed before.
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