Changing accounting date

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Changing accounting date
  • Reasons for moving to a late accounting date
  • Reasons for moving to an early accounting date
  • Risks involved with changing accounting date

This note discusses the issues around changing accounting date.

Once a business has established an accounting period end it is fairly uncommon to change it. Many businesses will have adopted an accounting date on starting their business and never reconsidered it. A change can be disruptive to administration of the business and there is often very little reason to do it. However, in some situations it can be beneficial and smaller businesses tend to have less attachment to a year end, due to simpler administration.

Many of the issues in this note are also covered in the Choice of accounting date guidance note and subsequent notes in that topic. Those notes explain the rules as laid out in ITTOIA 2005, ss 196–220 (Chapter 15 of Part 2). However, this note considers the tax planning considerations around changing the accounting date.

The conditions required for a change of accounting period to be valid is an important point to consider. These are laid out in ITTOIA 2005, ss 217–218 and give three conditions to be met. These are:

  • the trader gives appropriate notice to HMRC within a self assessment return filed before its due date
  • the accounting period that changes the accounting date is not longer than 18 months, and
  • either:
    • A)there has been no change in accounting date in the five previous tax years, or
    • B)there is a commercial reason for the change of accounting date and this is stated along with the notification of the change of date (in the white space within the return)

If these criteria are not met, ITTOIA 2005, ss 216(4) and 219 apply. These provisions effectively state that the change is ignored and the trade continues to be taxed as if on the current

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