Important Dates – Differences Between Fiscal and Accounting Year Ends. When You Need to File Your Accounts, Pay Your Taxes, VAT, etc.

Accounting dates and deadlines are an important part of keeping your books in order. The UK tax year runs from April 6th to April 5th, which can seem slightly confusing. This is why certain businesses might choose different dates for accounting purposes. But what is the difference between an accounting and a fiscal year?

What is a Fiscal Year?

The tax year is also known as the fiscal year. As mentioned above, it runs in the UK from April 6th one year to April 5th the following year. This fiscal year applies to:

  • Sole traders

  • Partnerships

  • Individuals working for companies

However, limited companies have a different financial year, which runs from April 1st one year to March 31st the following year.

The government typically sets new corporate tax rates and rules to start on these dates. This means that new tax rates apply from April 1st, for example. This can make the company’s accounting easier.

The fiscal year remains the same and companies can’t choose it freely. This means that the end of the fiscal year in the UK is March 31st for limited companies and April 5th for other private and business entities.

What is an Accounting Year?

An accounting year is a period during which a company or an individual gathers and organises its financial activity. It can be different from the fiscal year, although most individuals and companies find it easier to keep the accounting year the same.

The accounting year runs from the day after the previous accounting year ends to the next accounting year-end. Therefore, for most limited companies, March 31st would be their accounting year-end. Likewise, many sole traders choose April 5th for their accounting year-end.

However, it is possible to choose the accounting year to commence and end on any other date, as long as the accounting year is no longer than 12 months.

Of course, it can be possible to have your accounting period different from the fiscal year or shorter than 12 months. This often happens:

  • In the first year of business

  • When you restart a business

  • You stop trading and become dormant

It is also possible to lengthen the company year. However, you would have to file two tax returns because the accounting period cannot ever exceed 12 months. The HMRC website has lots of valuable information on how to proceed if your accounting period is above or below 12 months.

The Benefits of Matching Your Fiscal Year and Accounting Year

While it’s possible to have a different end to your accounting year than the fiscal year, many choose to have the two periods align. In general, the date you choose impacts the date you have to pay tax on your profits and aligning the two periods can make the process a whole lot easier.

The main drawback for choosing a different year-end date is the need to pay tax twice on the same profit. Below is an example highlighting this:

The first year of trading, tax is calculated based on profits from the date trading commenced to the following April 5th. This happens even when April 5th isn’t your chosen year-end date.
If you began trading on July 1st 2018, your first-year tax bill can cover the period from July 1st 2018 to April 5th 2019. This would be the case even if you choose your accounting period to end June 30th.

The second year of trading, tax is based on the 12 months of trading, ending on the chosen year-end date.
Your accounting period for the second year would be July 1st 2018 to June 30th 2019.

The third year onwards, tax is calculated using the 12 months ending in the tax year to which your assessment return relates.
Your third tax year would be the period from July 1st 2019 to June 30th 2020.

As the example shows, you would have an overlap period from July 1st 2018 to April 5th 2019, which would effectively be taxed twice. While deductions apply in the final year of trading, this can take years. For many small businesses, it can be much easier to match the fiscal year-end with the accounting year-end in order to avoid this.

The Most Important Dates for Your Accounting Needs

The start and end dates for the fiscal year are as follows:

  • The tax or the fiscal year ends on April 5th. For example, tax year 2018/2019 ends on April 5th 2019.

  • The fiscal year starts on April 6th. The tax year 2019/2020 begins on April 6th 2019.

If you need to file self-assessment, the key tax deadlines to know are:

  • Deadline to pay the first payment for the previous accounting year is January 31st.

  • Deadline for the second payment on the account is July 31st.

  • Deadline for paper self-assessment return is October 31st.

  • Deadline for online self-assessment return is January 31st.

  • Deadline for paying the tax bill is on January 31st.

For limited companies, the tax end-dates will be different and limited companies must prepare both full annual accounts and a Company Tax Return. The key dates for your Company Tax Return are:

  • Deadline for filing a company return is 12 months after your accounting period ends.

  • Deadline for paying the tax bill is 9 months and 1 day after your accounting period ends.

You can find plenty of good information regarding taxation from our previous post on the major changes for the 2019/2020 tax year.

How We Can Help You with Your Tax Returns

We at Devonshire Green are committed to helping you get through the tax season. If you would like help planning and filing your taxes, we can assist you according to your needs. Contact us today and let’s sort out your taxation needs straight away!

Nick Bagga