Financial, accounting, tax and fiscal years explained
When it comes to running your own business, there are lots of very similar-sounding ‘years’ to remember. If you’re not completely sure what the difference is between the financial year, accounting year, tax year and fiscal year, don’t worry - you’re not the only one.
Luckily, you only need to get to grips with the ‘years’ which apply to your business type. Find your business type below and learn which years might affect you.
For limited companies, the financial year runs from 1st April to 31st March the following year. The start of the financial year is the date that any new tax rates and rules typically come into effect. For example, a new Corporation Tax rate might start on 1st April 2024.
The accounting year is the period a limited company chooses to prepare its accounts for. This always runs one full year from the day after one accounting year end to the next accounting year end. However, each limited company chooses its own accounting year end date.
Companies House will automatically set the accounting year end as one full year after the end of the month in which you incorporated the company, however you can change this. Many limited companies choose 31st March for their accounting year end so that their accounting year matches the financial year - this means your company will only need to calculate Corporation Tax based on one set of rates.
The dates you choose for your accounting year will affect when you pay Corporation Tax on your profits, as companies pay Corporation Tax nine months and a day after their accounting year end. For example, if you prepare your company's accounts to 30th April each year, you will be required to file your annual accounts by 31st January and Corporation Tax will be due by 1st February.
This may pose difficulties if you also prepare VAT returns for calendar quarters, because your company will then have two tax bills to pay in early February - not to mention your own personal Self Assessment tax payment, which is due on 31st January. It’s worth double-checking that your choice of accounting year end isn’t setting you up for a tricky cashflow situation.
Sole traders and partnerships
Tax or fiscal year
Relevant for all individuals, including sole traders, partnerships and those who work for a company, the tax year, also known as the fiscal year, runs from 6th April to 5th April the following year. At the start of a new tax year, new tax rates and rules might come into effect. For example, Income Tax rates may change from 6th April 2024.
The accounting year runs from the day after the previous accounting year end to the next accounting year end. The accounting year end is the date that a sole trader or partnership chooses to prepare its accounts to every year.
Sole traders and partnerships can choose their accounting year end. However, if you currently use a date between 6th April and 30th March, the way HMRC assesses your profits will change in 2024.
As of 6th April 2024, sole traders and partnerships will be assessed on their profits for each tax year (up to then it’s the accounting year) and so you may wish to change your accounting year end to 31st March or 5th April. This would align your accounting year end with the end of the tax year, which will potentially make your reporting easier and means you won’t have to pay tax twice on the same profits in your early years of trading.
If you currently use an accounting year end date between 6th April and 30th March, there may be a change to the amount of tax that you owe in the 2023/2024 tax year. You will be assessed on both the tax for profits for the 12-month accounting period you have been using, and the remainder of the 2023/24 tax year not covered by your accounting period.
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Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.