If you’re a small business owner, you may not have considered changing your business’ year end date – the date your accounting year ends.
Unless you’re providing accounts for your first year, doing so will also change your assessment deadline.
Changing your business’ year end date isn’t too complicated. You can shorten the timeframe by a minimum of one day or lengthen it by a maximum of 18 months – longer if you’re in administration.
This is entirely up to you as the owner, but there are certain things you need to consider before making the change.
You can’t extend when you’re already overdue
So, you’ve run over the deadline for transferring your tax payment or missed the date you needed to have sent your return to HMRC.
It might be tempting to see extending your tax year as a handy way to get out of these difficulties – unfortunately, this isn’t the case.
You can’t extend your company’s year end date when taxes or tax returns are overdue. Instead, you need to contact HMRC to explain the situation and start putting things right.
Your cash flow can be affected
There are no technical cash flow benefits that come with changing your business’ year end date. No matter the length of time you decide on, you’ll need to pay taxes on your profits eventually.
However, there are some advantages that come with choosing a year end date that is earlier in the tax year.
The earlier the date you choose, the longer you’ll have to pay tax on your profits. This means your tax bill will rise more slowly when profits are increasing.
However, it will take longer for any reduction in your tax bill to come into effect if profits are dropping.
You may run greater risks
Changing your business’ year end date is not without risks. If you decide to change the date to later in the tax year, you’ll have a shorter period in which to make any of the necessary tax-related payments.
If you find yourself falling short of the amount you owe to the government, you might find it harder to get the right sum together, thereby increasing the likelihood of facing a late payment penalty.
You can work around the right periods
It might be that your business brings in the same amount of money all year round and never really experiences any peak levels of activity.
However, this is not always the case, and changing your year end date can be advantageous if it’s not.
For example, you might find that the date for finalising your accounts falls at the exact same time your business tends to become its busiest. In this case, it might pay to change the year end date to a time when things tend to be a little calmer.
Changing your business’ year end date: a summary
Ultimately, changing your business’ year end date is a personal choice. It’s important to weigh up the potential benefits and pitfalls with regard to your specific circumstances before making the change.
If you’d like some advice, feel free to get in touch with us – we’d love to help.