Should you change your limited company’s financial year to match the tax year?

Kirsty Young Tax

Does it matter if your company year end is in a different month to your personal tax year?

It’s one of the most common questions small business owners ask us. Owners usually want to know if changing their company year end to say 31st March (to be roughly in line with the personal tax year that ends 5th April) is ‘the best’ thing to do?

The short answer is … there is no ‘best’ thing to do. (Now how did you know we were going to say that?!)

Here are the main ‘pros and cons’ of aligning your limited company financial year with the tax year, to help you decide if you want to do this.

 

The benefits of matching your year end to the tax year

👍 It make sense to you

If you are a small company, it’s likely to ‘make more sense’ to you as the owner. It will also ‘make sense’ to other interested parties like mortgage lenders or banks. They might want to understand your personal income in combination with your company profits.

    • If you align the year end dates, you will more easily be able to see how the profits in company relate to the earnings declared on your tax return.
    • If you are the sole owner, any dividends shown in the limited company accounts are likely to match those on your tax return, as the period covered by the accounts and tax return are almost the same.

This is not to say mortgage lenders or bank can’t deal with year ends that are different to the tax year (they certainly can), it’s just simpler to picture.

👍 A single point in time

When both company and personal tax years end at the same date (or withing a few days of each other), that becomes a single review point and period for tax planning.

    • If you are planning any tax-efficient drawings from the company for yourself or working with your accountant to do this, having the periods align for planning can make the process simpler.
    • A single reference point can allow you to more easily picture both personal and business tax matters simultaneously. This is particularly important if you are working with an accountant whom you see once a year. Then, this single look at both personal tax and the company year end can work well.

👍 Synchronise accounts submission deadlines

If you align your year ends, the deadlines for submission the following will be close together:

    • Your personal accounts
    • Your personal tax return
    • Your business accounts
    • Your business tax return

This is likely to be the end of December for your business and end of January for your personal tax. This also means the payment deadlines are similar for the various taxes. Again, this can feel easier to manage.

 

The downsides of matching your year end to the tax year

👎 Cashflow for tax payment

If the combined reporting deadlines will be very close together, then so will the tax payment dates. For some business owners, this is actually a disadvantage for cashflow reasons, as several potentially large payments need to be made in a short space of time.

Of course, if you’ve been a diligent owner and saved well for your tax it shouldn’t be a problem, but we don’t live in a perfect world! So you may find it better to pay tax at different times of the year.

👎 Bottlenecks at your accountants

Many limited companies have a 31st March year end, so it’s a busy time for accountants. As a result, you might encounter slightly longer lead times with your accountant than you might overwise, in terms of receiving your annual accounts.

👎 Christmas deadlines

If you hate that mad rush to get everything done by Christmas, aligning your company and tax year end may add to pre-yuletide pressure. With a company year end of 31st March, the due date for the limited company accounts being with Companies House is likely to be the end of December. If you factor in Christmas, this often means you’ve lost a week of time to prepare and submit!

What’s more, if you do leave submitting your records to your accountants to the last minute, you inevitably find yourself trying to wind down for Christmas AND rushing to answer queries or find receipts.

Needless to say, this is best avoided by submitting to your accountant early… but again we don’t live in a world without other pressures on us as business owners.

👎 Flying solo

If you are doing this yourself, you have two sets of tax returns and accounts to sort out in together, which may not be ideal. The last thing you want to be doing over Christmas and New Year is doing your accounts and trying to get them filed when you are tired/wanting to relax/hungover (delete as appropriate).

AND

👉For the tax savvy

One single point of review for tax planning may simply matters. However, having an additional review point at a different time (due to a different company year end) can allow further oversight and therefore flexibility. To make the most of this, you really need to be on top of things yourself. Or you should be working with an accountant/tax advisor that looks at your affairs more than once a year.

 

So, what is ‘best’?

As we said up front, there isn’t a one size fits all ‘best’ answer. As an accountancy firm, we mostly have more than just an annual touch point for our clients anyway, so we’re in touch with what is happening more regularly.

In addition, most of our accountants here quite like clients having a ‘non-tax year’ company year end, so they are not busting a gut just before their Christmas and/or Easter holidays! That said, for a host of reasons we still have a ton of clients with a 31st March year end.

If you got 50 accountants in a room and asked them what they’d prefer, you would probably get a mix of opinions!

If you do want to change your year end for the company, it can be done online with Companies House. There are time limits and potential impacts to filing and payment deadlines to consider – so be careful! You will also need to speak to HMRC to make sure the company tax returns now cover the right period.

 

Help is at hand

For further help with changing your company tax year, ask your accountant. If you feel your accountant isn’t giving you the attention and information you need, we’d be happy to chat about that.