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Choosing an accounting date for your business

Jay Rickards • Feb 22, 2022

Do you know the benefits of different accounting dates for your business?

Let's go through some pro's and con's.

Many business owners don’t realise they can change their accounting date.

Which date you already have or choose to have is worth some consideration as it will affect the following for you:
• Any overlap profits
• Timing and amount of tax payable

You can’t do this if you’ve already changed your dates in the last 5 years and your first accounts with the new date can’t be longer than 18 months. You’ve also got to notify HMRC by 31st Jan after the tax year the change was made.

Here are some advantages to a couple of dates:

🌟 Y/end 31st March benefits 🌟
• Easier to understand and follow
• Minimises the final years liability
• No **overlap profits (profits taxed twice (in 2 tax years) due to the difference in the accounting period vs tax period)

🌟Y/end 30th April benefits 🌟
• More time to prepare and calculate tax, enabling more planning time.
• More time between earning revenue and paying tax - up to 11 months with a 30/04 end date.

Immediate effects of changing date + examples:

🌟Accounts prepared following change giving a period longer than 12 months = overlap profits deducted to a period of 12 months.

Example -
Old Year end date 30/11
Profits Y/E 30/11/2020 £20,000
New Y/E date 31/03 so will prepare accounts to 31/03/2021
Profits for 16 month period (01/12/2019-31/03/2021) = £30,000
Existing 4 month overlap of £5,000.
Answer:
Profits for 16 months £30,000, less overlap of 4 months (remember ONLY deduct until total months is 12) -£5,000
Taxable profits = £25,000.

🌟 Accounts prepared following change giving a period shorter than 12 months = more overlap profits created.

Example -
Old Year end date 31/12
Profits Y/E 31/12/2020 £30,000
New Y/E date 30/04 so will prepare accounts to 30/04/2021
Profits for 4 month period (01/01/2021-30/04/2021) = £15,000

Answer:
Tax 12 months to new accounting date = (Jan-Apr) £15,000 + (8/12*£30,000=£20,000)
Taxable profits = £35,000.

**overlap profits are deductible from final profits when the business or partner of the business (in which case their proportion) ceases trading.

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