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What's in a year end?

There are a limited number of opportunities to defer the impact of taxation by making a calculated change to your business year end date. For example:
If your business is a limited company
Say your company accounting year ends 31 December. Shortly before the 31 December 2015 you realise that in the first six months of 2016 your company will make a significant loss for tax purposes due investment in qualifying plant and machinery. Ordinarily, this loss will affect your tax position in the year to 31 December 2016, and reduce corporation tax due autumn 2017.
What you could do is extend the 2015 accounting period to 30 June 2016 (this would be the maximum period allowed under current legislation, 18 months – 1 January 2015 to 30 June 2016). In this way you may be able to make use of the tax loss a year earlier.
As implied, you cannot change accounting dates with impunity. The current rules are:
You can shorten your company’s financial year as many times as you like - the minimum period you can shorten it by is 1 day.
You can lengthen your company’s financial year:
  • to a maximum of 18 months, or longer if your company’s in administration
  • once every 5 years
You can only lengthen the financial year more often than every 5 years if:
  • the company is in administration
  • you’re aligning dates with a subsidiary or parent company
  • you have special permission from Companies House
You can’t change your company’s year end when its accounts are overdue.
If you run your business in partnership or as a sole trader
Most self-employed businesses have a year end date that matches the end of the tax year: the 31 March or 5 April.
There can be opportunities to reduce tax if your end is any other date in the calendar year.
However, it is beyond the scope of this article to describe in easy to read terms what these advantages are. Self employed readers who would like more details about the possible tax advantages of a change in their accounting date should call and speak to us.