Benefits of changing your accounting date

We’ve previously shown you how to change your company’s year end, so in this blog we’re going to discuss the benefits of changing your accounting date.

changing your company's year end

When you’re changing your company’s accounting date with Companies House you will either be shortening it or extending it. You should be aware that the maximum permitted length for a company’s accounting period is generally eighteen months.

So what are the benefits of changing your accounting date?

Benefits of changing your accounting date - deferring a tax liability

Perhaps the most obvious reason for changing your accounting date is to defer a tax liability. When your company’s profits are falling you can push back your accounting date, and when profits are rising you can bring it forward.

An example

The Defiants Limited made profits of £400,000 in the year ended 31st March 2017 and a loss of £150,000 in the following six month period.

If no change is made to the company’s year end, £400,000 of the company’s 2017 profits will be charged to corporation tax (at 20%) and a tax liability of £80,000 will be due on 1 January 2018.

The loss of £150k will then be 'thrown back' against the profits of 31st March 2017 when the 31st March 2018 tax return is submitted and tax will be repaid of £30k.  This means the overall tax payable will be £50k.​

Instead, the company prepares accounts for the eighteen months ending 30th September 2017.

This has the following benefits:

  • The taxable profits are reduced from £400,000 to £250,000
  • This reduced profit is split between two accounting periods on a time apportioned basis. So for the 12 month period ended 31st March 2017 this will be £166,667 and for the six month period ended 30th September 2017 it will be £83,333
  • The tax payable on 1 January 2018 reduces from £80,000 to £33,333
  • The tax payable at 1st July 2018 is £15,833
  • Total tax payable is £49,166 - there is not only a small tax saving but, more importantly, there is a significant delay as to when the tax will be payable

Benefits of changing your accounting date - delaying a deadline for submitting accounts

There are some hefty financial penalties for late filing of accounts with Companies House so if you extend your accounting date this will allow you more time to file them and could also help you avoid a fine of £150.

Benefits of changing your accounting date - aligning it with the personal tax year

If you’re a company director chances are you’ll probably have to submit a personal tax return to HMRC.

As your personal tax return covers the tax year ending 5 April, having a company year end of 31st March coincides neatly with this year end.

This can potentially make your own and the affairs of the company’s shareholders more straightforward. For example, it can make planning for dividends and pension contributions easier to identify and implement in real time.

Benefits of changing your accounting date - avoiding extra work during your busy period

If for example you have a retail business and you anticipate that you'll be busy over the Christmas and New Year period it would be sensible to avoid your company’s accounting date ending between late November and mid-January.

This way you or your staff won’t be tied up with stock taking and other year-end tasks when they need to be dealing with customers.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at richard@tfaaccountants.co.uk.

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