Defining Annual Deadlines From an Accountancy Perspective
When it comes to the financial sector of business, it is important to be rigorously aware of the different annual deadlines. But remembering and understanding the Financial, Tax, Fiscal and Accounting years is complicated!
Each category owns varying relevance depending on your business. Stonehouse has produced this blog to explain the differences, and of which you should be aware.
All limited companies should be aware that the financial year runs from 1st April of one year to 31st March of the following. The government uses this specific deadline to set adjusted tax rates and introduce new laws. Making Tax Digital came into force in April in 2019 for instance.
The accounting year ends on the date selected by a limited company. The end of this type of year marks the deadline for which a business must have its accounts prepared. It starts the day after the previous accounting year ends to the next accounting year-end. To simplify things, many companies opt for dates that correlate to the financial year (31st March to 1st April).
The tax year ends nine months and one day after the accounting year ends. This is the date whereby you must pay tax on your profits. This is a moment where careful consideration needs to be taken. Having your accounts prepared for 30th April each year means Corporation Tax will be expected on 1st February.
So if you also have VAT returns set to each quarter, you will have two tax bills to fulfil at the same time (early February), meanwhile, Self-Assessment Tax was due on 31st January! To avoid any difficult financial issues, it is worth thinking about the implications of setting your accounting year in this way.
Sole Traders and Partnerships
The tax year (which is also known as the fiscal year), for sole traders, partnerships and employees of a company runs from 6th April to 5th April the following year.
It is quite common for sole traders to select 5th April as their accounting year finale so that it corresponds to the tax year. HMRC has authorised that a sole trader using 31st March for their accounting year-end is recognised as owning an accounting year that matches the tax year.
This is an especially clever financial move as you won’t have to pay tax twice on the same profits in the initial establishment period when you start off as a business. A basis period is the time period for which a sole trader or partnership pays tax each year. The guidelines surrounding the basis period, which defines the code of practice on tax payments of your profit, is that the amount you pay on profit for the accounting year ends within the corresponding tax year.
As such, with the accounting and tax year matching, it’s far easier to interpret which profits are taxed each year. This is how you avoid the mistake of paying tax twice.
Using Deadlines to your Advantage
Of course, this does not mean you are restricted to starting off your new business in April; your accounting year is entirely based on your own desires and goals. But it is always good practice to ensure you are reporting your profits accurately as per the aforementioned basis period guidelines.
Keeping tabs on your profits is extremely important for those sole traders and partnerships who wish to set their accounting years differently to the tax year, i.e. with April 5th being the deadline. You need to know which profits are reported to which year’s tax return.
As an example, say you select 30th April as your accounting year-end. Preparing your tax return for the tax year 2017/18, your report will identify your profits for the year ending 30th April 2017. This is almost a year before the end of the tax year as it was the accounting year that finalised in the tax year 2017/18. Therefore, you will be paying tax on the profit a long time after the profit was actually generated! In this circumstance, ensure you have plenty of funds set to one side to accommodate unexpected/forgotten tax payments.
Stonehouse Accountants are here to contribute expert guidance and assistance with all of the above financial deadlines. Where you may have limited understanding or require clarity when it comes to the accounting, tax, fiscal and financial details of your business, Stonehouse will confidently support you. Contact us here!