Owner-Managed Businesses

Changing accounting date

Produced by Tolley
  • 02 Dec 2021 08:51

The following Owner-Managed Businesses guidance note Produced 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

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.

It should be noted however that the Government is introducing a reform of basis periods for unincorporated trading businesses whereby businesses will be taxed on the profits arising in a tax year, which will remove some of the benefits detailed below. The transition to the new rules will take place in 2023/24, and the new rules will come into force from 6 April 2024, see the Basis period reform guidance note for details of the changes.

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.

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