Is it possible to change your company’s year end?

His Majesty’s Royal Commission (HMRC) sets every business’s default financial year-end date in line with the national tax year dates of 6th April to 5th April of the following year, but you are permitted to change it.

There are no hard and fast rules regarding the date you choose for your company’s year-end, but there are some important considerations to take into account when deciding what will best serve your business.

What does ‘Financial Year-End’ mean?

The term ‘financial year-end’ refers to a company’s fiscal 12-month period, which is often more commonly known as the accounting period or tax year. In the UK, the default tax year dates run from 6th April to 5th April of the following year. Based on this default setting, a company’s financial year-end date would fall on the 5th of April each year.

When you set up a new business and register it for corporation tax (tax paid by companies in the UK), a letter will be issued by HMRC that includes your company’s new 10-digit Unique Taxpayer Reference (UTR). All new businesses must register for corporation tax within three months of commencing any business activities. Registration can be completed online.

How do I know what my financial year-end date is?

Many new businesses start out by falling in line with fiscal accounting, meaning that their business’s year-end remains the same as the dates set by HMRC for the UK tax (fiscal) year.

Unless and until you actively change your company’s financial year-end date, it will automatically be set to fiscal accounting, thus ending on the 5th April every year.

Ultimately the choice is yours, and you are free to set your company’s year-end date to whatever date you like, but here are some factors to take into consideration.

How will the date affect when my tax is payable?

The date you choose for your company’s financial year-end will affect when your corporation tax is due for payment.

The deadline for paying Corporation Tax in the UK is always exactly nine months and one day from the company in question’s financial/accounting year end date. The only exception to this is when a business is in its first year of trading, in which case the deadline is nine months and one day from the start date of the incorporation.

Benefits of changing your company’s year-end

With an earlier year-end date, the accounting period becomes shorter, which can potentially mean less profit and, thus, a lesser amount of Corporation Tax to pay. Conversely, by extending the year-end date to create a financial period of over 12 months, companies gain valuable extra time in which to prepare themselves to meet their tax obligations.

For startups who are gradually growing their profits, setting an earlier accounting year-end date can help to keep tax bills down and give the new venture room to grow and adapt to managing their finances to include tax obligations.

Deferring a tax liability

One of the most common reasons to consider changing your accounting period is to legitimately defer a tax liability. When a business’s profits are decreasing, it can make or break chances of survival to be able to push back the date that their tax is due.

The UK Corporation Tax rate is set to rise from 19% to 25% for all profits over £50,000, come April 2023, while the current rate of 19% will remain in place for companies whose profits are below £50,000. For the purposes of keeping the below example simple, we have kept the profits within the 19% range.

Here is an example of using your year-end date to defer a tax liability.

Let’s say your company makes a profit of £45,000 in the 12-month period ending 5th April 2021, but in the following six-month accounting period, it suffers a loss of £18,000.

With no changes to the year-end date, the £45,000 company profits will be taxed at the corporation tax rate of 19%, and £8,550 will be due for payment on 6th January 2022

The loss then incurred in the following six-month period will subsequently be offset against the profits made in the year that ended on 5th April 2021 (when the next return is submitted the following year). A tax refund of £3,420 will then be issued, bringing the overall tax paid to £5,130.

If instead, you prepare your company accounts for an 18-month period ending 5th October 2021, the following would apply:

• Taxable profits for the 18-month period are reduced to £27,000 overall

• These profits are then split across the two accounting periods evenly, so that for the 12-month accounting period ending 5th April 2021 the profits are £18,000, and for the six-month accounting period ending 5th October 2021, the profits are £9,000.

• The tax liability due on 6th January 2022 then becomes £3,420 (down from £8,550)

• The tax liability due on 6th October 2022 then becomes £1,710

While there is no change to the total tax payable, this example clearly demonstrates how pushing out the financial year-end date can not only avoid the need to pay out the tax that will subsequently be refunded, but it serves to defer a portion of the rightful tax amount owing for a further six months.

Avoiding the busiest periods of operation

The most popular choice of financial year-end dates among UK business owners is typically 5th April or 31st March, the latter of which is just considered by some as an easier way to tidy up the financial period on the last day of a trading month.

For businesses that operate on a seasonal basis, it’s best to ensure that the year-end date is set during a time that doesn’t clash with the busiest trading periods, such as summer or Christmas. A seasonal business’s primary focus during its peak season needs to be efficient and profitable business operations, not stock-taking and wading through accounting matters.

What is the best financial year-end date for a new venture?

For new business ventures, it’s likely that you won’t expect to start making any real profits until at least 12 months of trading. For most businesses, the first year of operation is spent focusing on growing revenue from scratch, absorbing set-up costs, and, in many cases, just breaking even is a lofty goal. For this reason, many startups go for a financial year-end date that is earlier on in the tax year, to help keep initial tax liabilities lower as the business finds its feet.

Confirming your company’s year-end date

Most new business owners assume that their company’s year-end date will automatically follow the UK fiscal calendar and end on the 5th of April. Alternatively, many assume the 31st of March, or possibly 12 months from the date that the business began operating or was registered for corporation tax, and one of these options is typically the case. Still, it is important to check your company’s year-end date to be absolutely sure, and there is an easy way to do this.

• Visit the government’s Companies House website

• Enter the company name you used when registering as an incorporation

• Find your company name on the list and click on it

This will take you to a page containing all information held regarding your company, including your current year-end date, which should be found under the tab ‘Accounts.’

Related: What are statutory accounts? A short guide

When to consider changing your financial year-end date?

When starting out in business and having little experience in accounting and running a business, it can be tricky to know what to do for the best. Your account should, of course, be able to advise you best given your circumstances, but it helps to start gaining a good understanding of such processes for yourself.

Businesses are not permitted to change their year-end date however and whenever they like (more on that later), so it’s important to consider it carefully before taking action. If changing the date will assist you with adapting to profit fluctuations or deferring a large tax liability, it’s well worth thinking about doing.

How to change your company’s financial year-end date?

Businesses in the UK are permitted to shorten their accounting periods as many times as they like, but it can only be extended once every five years (with some exceptions).

The minimum period in which a business can shorten its accounting period is by one day, while an accounting period can be extended to a maximum of 18 months (with exceptions).

Exceptions to the rules regarding extending an accounting period include:

• A company that needs to align its year-end date with its parent or other subsidiary company

• A company in administration

• A company that has obtained special permissions from Companies House

To change your company’s year-end, you can either:

• Apply online via Companies House, or;

• Download and complete an application form from the site and mail it to the address as stated on the form

It’s important to note that your company will not be eligible to change its year-end date while any tax accounts are overdue. It’s therefore imperative that you maintain your accounts and stick diligently to your budgeting and cash flow management to avoid incurring any late tax penalties; Having the option for changing your year-end date up your sleeve is a valuable tool to have at your disposal.

For more information on this, or if you’d like any accountancy advice, speak with one of our small business accountants at 0207 043 4000 or  info@accountsandlegal.co.uk.