When should you change the year end date?

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When should you change the year end date?

When you set up your Limited Company you are automatically given a year end by the Registrar of Companies.  The year end date is dependent on the month in which you receive your Incorporation Certificate.

Example:- if you set up your Company and are given an Incorporation Certificate dated in March 2015 then your year end date will be set at 31 March each year (i.e. your first year end will be from the date of incorporation to 31 March 2016 and then yearly to the 31 March thereafter).

Therefore, the question is, should you stick with the year end that you have been allocated by the Registrar, or should you change the year end?  In order to answer this I have listed below 6 instances of where you might find it advantageous to change the year end:-

1. To defer corporation tax.

This can be achieved where profits are falling by pushing back your accounting date, or where profits are rising by advancing it.

Example: Your profits for the 12 months to 30 June 2014 are £50,000.  The Corporation Tax on this will be £10,000 (£50,000 x 20%), payable on 31 March 2015.  For the 6 months to 31 December 2014 the Company made a loss of £20,000.  If the Company extends its reporting period to 18 months to 31 December 2014, then total profits will be just £30,000 (£50,000 - £20,000).  Two thirds of this will be taxed in the 12 months to 30 June 2014 and one third in the 6 months to 31 December 2014 (tax periods cannot be any longer than 12 months).  This will result in Corporation Tax of only £4,000 being due on 31 March 2015, compared £10,000 if the year end was unchanged.

2. To align accounting dates for companies in the same group.

This can reduce admin for your accounting staff and those of your accountant.  This is because Group Accounts need to be consolidated (i.e. grouped together) at the same date.  If a member of the group has a year end out of line with the other Companies this could require interim accounts being necessary for the Company with the different year-end date.  This is another set of accounts which wouldn't ordinarily need to be drafted. An adjustment to get all the year ends the same might even reduce the cost of preparing the group annual accounts!

3. To align VAT for companies with a group VAT registration.

This can smooth the administration of a Group Registration.  This will particularly be the case where the Group Companies trade between one another.

4. To align it close to the end of the personal tax year.

Individuals have to prepare their personal tax affairs to 5 April each year.  Therefore if you change the year end date to 31 March this will nearly coincide with your personal tax year end.

This can make the tax affairs of the company’s shareholders and directors more straightforward. It will be easier for them to identify what they’ve earned and which should be declared on their tax returns.

5. To avoid extra work at times of the year where trade is especially busy.

Example: You run a shop that expects to be busy around Christmas and the January sales.  It would be sensible to avoid accounting year ends between late November and mid-January. That way your staff won’t be tied up with stock taking and other year end tasks when they need to be manning the tills.

6. To delay a deadline for submitting your accounts.

Extending the accounting date will give you more time to file them at Companies House.  This could help you avoid a fine of £150 for late filing.

Example: Your year end date is 31 December 2014.  These need to be filed at Companies House by 30 September 2015.  Suppose you receive a large order in the summer which delays your normal processes to get the accounts in on time.  You could extend the year end to 31 March 2015 which will give you until 31 December to get the accounts filed.

Tax Tip: Although you can extend the year end, the corporation tax return cannot be extended beyond 12 months.  As a result the Corporation Tax will still be payable on 30 September 2015.  It would be worth making an estimate of the Corporation Tax and paying it on 30 September in order to avoid interest.  When you prepare the final accounts and calculate the right amount of tax, either make an additional payment or claim a refund depending on whether you under or overpaid on your September 2015 payment.

The process to change the year end date

The change of year end form can be downloaded from Companies House here.  Alternatively, if you know your Authentication Code and Password, you can log into your online account at Companies House and change the year end date online.

Warning: You can change the year end date by shortening it as many times as you like, however you cannot have a period shorter than 6 months.  However, if you change the year end date by extending it you will prevented from extending it again for 5 years!  There plan ahead if you want to change the year end by extending it.

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