Business Financial year - Eric Mc

[Scooby_snax]

Question aimed at Eric...I have tried to search for your response but to no avail. I recall you saying there were advantages in having the end of your Business financial year in the last week in March.
If you have the time would appreciate you reiterating your thoughts on this as I have recently formed a Company but not yet started trading
Cheers
Steve

[Chris_OCR]

Very interested to hear this as well as my companies financial year ends in the last week of March.

[Eric Mc]

There are both advantages and disadvantages - although the disadvantges are really related to Sole Traders and Partnerships rather than limited companies.

Advantages of 31 March year ends for limited companies -

the financial year end matches the Corporation Tax year (which is ALWAYS a 31 March year end). This means that changes to Corporation Tax rules, Capital Allowances and Tax Rates relate to one accounting year only. If the year end for the company is NOT 31 March then such changes will apply to woo different portions of the comnpany's annual accounts.
For example, if the company had a financial year end on 30 September 2009, then 6/12 of its profits will be covered by 2008/09 Corporation Tax rules and rates, and 6/12 will be covered by 2009/10 rules and rates.

31 March is very close to 5 April. This means that wages, salaries and any other payments to directors, shareholders or employees, showing in the annual accounts can easily be matched and reconciled to PAYE and wages records or will help ensure that figures entered in Self Assessment tax returns for directors or shareholders are easily reconcilable with what has been declared in the company accounts.

For my 31 March year end clients, it is much easier to have a meeting with them at this time of the year to review their company accounts, fix any accounting problems and make decisions about dividends and salary bonuses which can then be put through the accounts just before the year end. Both they and I will then know substantially where the company stands from a Corporation Tax point of view and they also know where they stand from a personal Income Tax point of view.

I cannot think of any real disadvantages for my clients. The main disadvantage for me is that I spend a lot of March meeting and discussing matters with my clients.

[Scooby_snax]

Many thanks Eric that sounds very sensible.
As mentioned my company starts its first engagement on 29 March the company was formed on 3 March. Is there any discretion when I make the end of the financial year or do I need to pass a resolution. My client has suggested I invoice them for April plus 3 days in March rather than just the 3 days then 20 (or whatever the number of days worked will be)
I am not bothered either way but will probably go down the April + 3

[Eric Mc]

What year end does Companies House show for your company?

What year end does HMRC THINK you will be preparing accounts to?

[Scooby_snax]

Accounting reference date is 31 March 2011
Thats OK then have answered my own question!....DOH

[boony]

If I was to form a company in May, can I nominate the financial year to be April-March or is it driven by the date on which you form the company?

[Simpo Two]

Eric Mc said:

There are both advantages and disadvantages - although the disadvantges are really related to Sole Traders and Partnerships rather than limited companies.

What would the disadvantages be? And can one simply change one's tax year on a whim?

[Eric Mc]

Simpo Two said:

Eric Mc said:

There are both advantages and disadvantages - although the disadvantges are really related to Sole Traders and Partnerships rather than limited companies.

What would the disadvantages be? And can one simply change one's tax year on a whim?

The TAX (fiscal) year is fixed in stone -

5 April for individuals, trusts and partnerships
31 March for limited companies

Accounting year ends can be any date you like - whether you are a sole trader, partnership or limited company

Individuals and limited companies usually set their financial years at the time they are initially set up. For limited companies, Companies House - if not instructed otherwise - will allocate a default financial year end based on the company formation date. For example, if a company was set up on 6 June 2009, its financial year end will be set at 30 June and the first set of accounts will be made up for the period ended 30 June 2010. At the time of setting the company up, a different preferred year end can be specified during the setting up process.
In my experience, many people setting up companies do not notice this option and end up with a company year end which may not be the most advatnatgeous or appropriate for their business.

The good news is that individuals, partnerships and limited companies are at liberty to change financial year ends.
Individuals and partnerships should be aware of the tax implications of changing year ends (the triggering of overlap relief and double assessment of profits sre the primary concerns)
Limited companies need to consider both the tax and the Companies House imlications of changing year ends.