Self Assessment - change of date for year end

mary

My son has been self employed for 2/3 years and has given his year end date as 5 April. Because he has a couple of sizeable incomes dated 4th April as shown on his bank statement, is it possible to change your end of year date to say April 1st instead, so that these two payments come into the following years figures?

Are you allowed to change the dates whenever you want or do you have to stick rigidly to the same date each time?

chrismac1

It is possible and in fact HMRC accept that a 31 March year-end is the same as 5 April. However, if he is doing his accounts properly under the accruals basis then the element of these receipts which is attributable to work done before 31 March still gets reported in these numbers.

Note that using the "cash basis" for accounts, whilst permitted now, has a number of drawbacks. The main one is that banks generally do not accept them in support of borrowing as by defnition they do not conform to International Accounting Standards.

So for you, and anyone else reading this, "cash basis" accounts need to be used with extreme caution and not for the purposes of a short-term tax saving for anyone likely to approach a bank for borrowing any time in the next 3 years.

purdyoaten

mary wrote: »

Are you allowed to change the dates whenever you want or do you have to stick rigidly to the same date each time?

Accounts with anything other than a year end of 5th April give rise to a period when some profits are 'taxed twice' - known as an overlap period.

If your accounts are made to 30th April, for example, there would be a period of 340 days in the overlap which would be available to be utilsed in one of two scenarios:

1) changing accounts to later in the tax year
2) cessation.

At the onset of self-assessment I recall HMRC indicating that there would need to be sound commercial reasons for moving one's accounts date to earlier in the tax year. In all the years that I have been working in taxation, I have never experienced this. On many occasions it good tax planning to move the accounting year end to later in the tax year.

There used to be a question on the form which asked to provide an explanation as to why one's accounting date had changed more than once in the previous six years - not sure if that is still the case.

Pennywise

There is no law preventing a change of accounting date. There was once a statement of practice from HMRC saying that they'd always allow a change to 5 April to coincide with tax years, and would allow any other change if there was a good logical reason other than tax planning. I've recently looked on their website for the wording of their statement of practice and couldn't find it. But nor could I find anything saying that they have restrictions on changing a year end either. So, I'd work on the principle that as long as you get the change right, i.e. fully understand and implement the rules on change of accounting date, and that as long as the new date becomes permanent for future years (ie you aren't constantly changing it either couple of years), then you'll be fine to change it. I'm sure you could come up with a reason why a different year end would be better or more convenient, i.e. 31 December because it's a quiet time of year or 5 April is problematic because sometimes it's before Easter and sometimes after, or whatever.

purdyoaten

Pennywise wrote: »

There is no law preventing a change of accounting date. There was once a statement of practice from HMRC saying that they'd always allow a change to 5 April to coincide with tax years, and would allow any other change if there was a good logical reason other than tax planning. I've recently looked on their website for the wording of their statement of practice and couldn't find it. But nor could I find anything saying that they have restrictions on changing a year end either. So, I'd work on the principle that as long as you get the change right, i.e. fully understand and implement the rules on change of accounting date, and that as long as the new date becomes permanent for future years (ie you aren't constantly changing it either couple of years), then you'll be fine to change it. I'm sure you could come up with a reason why a different year end would be better or more convenient, i.e. 31 December because it's a quiet time of year or 5 April is problematic because sometimes it's before Easter and sometimes after, or whatever.

My memory has not totally failed then?

The 'box' is still there : box 11 - If your accounting date has changed more than once since 2008, put 'X' in the box. We probably both know why this was. I had the misfortune to involved in the consultation period when self-assessment was first implemented, and I remember that the HMRC team were very insistant that this box was included. I am surprised that it is still there to be honest!

Just for curiosity - have you ever come experienced any business changing their year end to earlier in the tax year?

Conditions for change of accounting date

The following conditions apply if you want to change your accounting date from year four onwards.
• You must tell us about the change in your tax return, and send it back by the relevant filing date.
• The first accounts, to the new accounting date, must not be more than 18 months, and you must tell us why you made the change.
• If you changed accounting date in any of the previous five tax years, this change must be for a genuine commercial reason (obtaining a tax advantage is not a commercial reason).