Accounting year-end query…

Friday June 2016

Question: I commenced trading as a service provider on 1 September 2015 and now wish to complete my 2015/16 tax return. I have not incurred any capital expenditure and my turnover is less than the current VAT threshold. Should I use 30 March (or 5 April) as my accounting year-end?

Answer: If you make your business accounts up to 31 March, HMRC will treat this as being made up to 5 April. One advantage of a 31 March/ 5 April year-end is that no ‘overlap’ profits will be created. Broadly, overlap profits are brought about by being taxed twice in the first two years of trading. You would get relief for this overlap, but potentially this won’t be until a much later stage (for example if you change your accounting date, or if you cease to trade). Quite often, profits in a new business are smaller at the start and gradually increase. An advantage of a 30 April year-end is that tax is paid later. So, for a 30 April 2016 year-end, tax will become due for payment on 31 January 2018, and the tax on profits earned between 1 May 2016 and 30 April 2017 will be payable by 31 January 2019. If the business had a 31 March 2017 year-end, the tax on profits earned between 1 April 2016 and 31 March 2017 would not become payable until 31 January 2018. Of course, if you chose a later year-end, you should make sure that you keep enough money aside to pay your tax bill when it becomes due.

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