Company accounting periods
A UK company has 2 main sets of accounting periods:
- Those at Companies House, which are determined by Companies Act 2006, and form part of the public record of the company; and
- Those at HMRC, which are determined by Finance Act 1998, and form the basis of when accounts are sent to HMRC, and when the tax is paid.
The Companies House accounts dates are more flexible, and can affect the dates used for HMRC, so we will look at those first.
Accounting periods at Companies House, and how to change them
A company’s first accounting date is by default set to the last day of the month one year after incorporation. So a company incorporated on 15 June 2014 would have its first accounting date set at 30 June 2015, unless it is changed by the company.
The first accounting period may be changed so that it is any length between 6 and 18 months. This allows any annual accounting date to be adopted regardless of the date of incorporation.
For all accounting periods, the company may choose to file accounts made up to a date within 7 days (before or after) of its registered accounting date. For companies that organise their accounting records weekly, such as bars and restaurants, this allows them to prepare accounts to the same day of the week each year.
At any time before the filing deadline for an accounting period, the company may extend or shorten that accounting period so that it ends on a different date.
In order that the public record of a company’s accounts is regularly updated, an accounting period cannot be extended to longer than 18 months, and in most cases, the accounting period cannot be extended more than once every 5 years. To be more precise, notice cannot be given to extend an accounting period if it is within 5 years of the end of an accounting period that had also been extended.
There are no restrictions on how often an accounting period can be shortened, nor are there any limits on how short a period can be.
All changes to the length of a company’s accounting period need to be registered by a director or the company secretary filing form AA01 at Companies House, or by using their WebFiling online facility. Preparing accounts to a date within 7 days of the current registered date does not require a change in the accounting date to be filed.
Accounts filing deadlines at Companies House
The normal filing deadline for years other than the first year is 9 months after the end of the accounting period. For example, companies with the popular year end date of 31 March are required to file their accounts by 31 December.
The rules allow for month-end dates, so that a company with an accounting date of 28 February can file its accounts by 31 November, and not 28 November which a strict interpretation of “9 months” might suggest. This will only apply if the company’s accounting date is the last day of the month - a company with an accounting date of 20 January would still have to file its accounts by 20 October, rather than 31 October. Accounts for an accounting period ending on 29 or 30 May would need to be filed by the last day of February.
If the company’s first accounting period is longer than one year, the latest filing date is 21 months from the date of incorporation, or 3 months from the end of the new accounting period, whichever comes later.
If the accounting period is extended to more than one year, and it is not the first accounting period, the latest filing date remains 9 months after the new accounting date.
If the accounting period is shortened to less than one year, the filing date becomes 9 months after the end of the new accounting period, or 3 months after the date the change was made, whichever comes later.
All filing dates given are those by which the accounts must be received by Companies House. It is not enough to post them on the final day, even if proof of posting is obtained.
Filing penalties for late accounts are imposed automatically, and will only be waived in the most exceptional circumstances.
Accounting periods for corporation tax purposes
Corporation tax is charged using its own system of accounting periods, which are often the same as the accounting years used by Companies House, but they can also differ.
A tax accounting period starts as soon as one of the following happens:
- The company starts trading, or acquires a source of income; or
- The previous tax accounting period has just ended.
A tax accounting period ends as soon as one of the following happens:
- At the end of an accounting period at Companies House; or
- 12 months pass since the start of the period (so a period can never be longer than 12 months); or
- The company starts trading; or
- The company stops trading; or
- The company is wound up.
Corporation tax is payable 9 months and 1 day after the end of the tax period. Accounts are required to be sent to HMRC within 12 months of the end of the tax period.
If accounts are prepared for Companies House which do not match the accounting period required by HMRC, then instead of preparing a second set of accounts for HMRC, the company should apportion the income from its Companies House period to its tax periods, on a daily basis.
A company is incorporated on 1 January 2013, and starts trading on the same day.
It chooses to prepare its first Companies House accounts to 31 March 2014. It must file those accounts at Companies House by 30 September 2014.
The company has 2 HMRC accounting periods:
- 1 January 2013 to 31 December 2013, being the maximum length of 12 months, as nothing else has happened to close the period early. This period will comprise 12/15 (approx) of the profits in the Companies House accounts. The tax is payable by 1 October 2014, and the accounts and tax return should be submitted by 31 December 2014.
- 1 January 2014 to 31 March 2014, being the period from the end of the previous period, to a Companies House accounts date. This period will comprise 3/15 (approx) of the profits in the Companies House accounts. The tax is payable by 1 January 2015, and the accounts and tax return should be submitted by 31 March 2015.
When is the best year end for my limited company?
There is no single best choice for everyone, but these are the main factors to take into account.
Unless you really want your company accounting year end to coincide with your birthday or wedding anniversary, you will probably choose the last day of a month.
If your business is seasonal, having the year end just before your most profitable period can give you a cash flow advantage in postponing the payment of corporation tax on those profits.
If your priority is to show a strong balance sheet in your company accounts, to assist with raising finance, the company is likely to be in its best financial state shortly after your most profitable period. This would be a good time to draw up your annual balance sheet. For example, for a retailer, this might make 31 December a good choice.
31 December is often convenient, but if there is a lot of company accounting work to be done around the year end, this will need to be fitted in around the Christmas and New Year holidays. This is particularly the case with a year end stock take, which would need to be carried out as near to 31 December as possible.
The most popular choice is probably 31 March, as it fits in with the income tax, corporation tax and payroll tax years. This can make most tax and accounting matters slightly easier to deal with.
Due to the popularity of 31 March, accountants tend to be busier between June and December each year. You may find that you get a quicker turnaround of your accounts if you choose an accounting date of 30 September or 31 December, and then present your accounting records in either February or March.
The deadline for 31 March accounts is 31 December. If you tend to leave your accounts to the last minute, then you may incur late filing penalties due to delays over the Christmas period.
Corporation tax is payable 9 months after the end of your accounting year, so your choice of accounting date may be influenced by when you want to pay your tax each year. For example, a retailer might instead choose 31 March so they can plan to pay the corporation tax on 31 December using their Christmas takings.
If none of these factors are very important to you, and you just want the simplest option, we would recommend 31 December or 31 March.