Owner-Managed Businesses

Choice of 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:

  • Choice of accounting date
  • Factors to consider
  • Cash flow
  • Administration
  • Deferred tax position
  • Short-term factors

Choice of accounting date

Factors to consider

When choosing an accounting date for a business, there are advantages and disadvantages in picking certain dates.

There are three key factors to consider:

  1. cash flow

  2. administration, and

  3. deferred tax position

There can be also short-term benefits in selecting, or changing to, a particular year end. This is of relevance where there is a change in tax rate or taxpayers’ wish to crystallise the deferred tax asset of overlap profits.

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.

Cash flow

There are advantages to having a year end that finishes early in the fiscal year. An early year end, such as 30 April, means that there is a longer gap between making profits and paying tax. Compare a March and an April year end in 2021:

Payment dates for self assessmentYear end 31 March 2021Year end 30 April 2021
First payment on account date31 January 202131 January 2022
Second payment on account date31 July 202131 July 2022
Final payment date31 January 202231 January 2023

There is only one month’s difference in year end, but the April year end benefits by not having

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