How do I choose my own year end??


M

Martin Bishop

I asked another NG this question, but everyone seemed to be from abroad.

I'm starting out in business (self-employed). Someone told me I could choose
my own financial year. When I tried to set up quickbooks, it asked me when
my financial year begins. I presume this has something to do with seasonal
business, I'm in wedding photography mainly, so the majority of my work is
from June to September. Does anyone here know how to choose? Or is it easier
in certain ways to keep it the same as the tax year (april to april)?

Martin
 
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D

Doug Ramage

Martin Bishop said:
I asked another NG this question, but everyone seemed to be from abroad.

I'm starting out in business (self-employed). Someone told me I could choose
my own financial year. When I tried to set up quickbooks, it asked me when
my financial year begins. I presume this has something to do with seasonal
business, I'm in wedding photography mainly, so the majority of my work is
from June to September. Does anyone here know how to choose? Or is it easier
in certain ways to keep it the same as the tax year (april to april)?

Martin
You can choose when your first accounting period ends, but not when it
begins. It must start when your business started.

Most people go for 5 April or 31 March - but this may not be a good choice
depending on individual circumstances.
 
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J

John Pointon

Doug said:
You can choose when your first accounting period ends, but not when it
begins. It must start when your business started.

Most people go for 5 April or 31 March - but this may not be a good choice
depending on individual circumstances.
Most new businesses make little money in their first year and might even
make a loss for tax purposes when capital allowances are taken into
account. Because of the peculiarities of the rules for basis periods
for new businesses under self-assessment and the dates for payment of
tax, it may be worth considering making 30 April the end of your first
period of account.

For example, if you began business today, your first self-assessment
return would be for the year to 5 April 2004 and be based on your
accounts to 30 April 2004 on a time apportioned basis. The tax will be
payable no later than 31 January 2005 (with payments on account due for
2005 on 31 January and 31 July 2005 if your total tax and Class 4 NIC
for 2004 exceed £1,000)

For your self assessment for the the year to 5 April 2005, the
assessment will be based on your first year's trading by taking the
taxable profits for the period to 30 April 2004 and adding to them the
profits from 1 May 2004 to the anniversary of your commencement date by
time apportioning those for the year to 30 April 2005. with the final
payment of tax and Class 4 NIC being due no later than 31 January 2006.

The assessment for the year to 5 April 2006 will be based on the
accounts to 30 April 2005 with the final payment of tax and Class 4 NIC
being due no later than 31 January 2007 - a gap of 21 months between the
end of the accounting period and the final payment.

Subsequent years (except that in which the business ceases) will have a
similar gap between the end of the accounting period and the date when
the tax falls due.

Compare this with using 31 March or 5 April (which I shall treat as
being the same)

The 2004 assessment will be based on the period to 31 March 2004,
payment of tax being due no later than 31 January 2005 as above.

The assessment for 2005 will again be based on your first year's
trading by taking the taxable profits for the period to 31 March 2004
and adding to them the profits from 1 April 2004 to the anniversary of
your commencement date by time apportioning those for the year to 31
March 2005. with the final payment of tax and Class 4 NIC being due no
later than 31 January 2006.

However, the assessment for 2006 will be based on your accounts for the
year to 31 March 2006 with the final payment of tax and Class 4 NIC
being due no later than 31 January 2007 - a gap of only 9 months between
the end of the accounting period and the final payment.

Thus if you choose 30 April as your accounting date you have the maximum
time (apart from choosing 6 April) between the end of your accounting
period and the time you have to make the final tax payments based on
them. Furthermore, it gives your accountant the maximum time in which to
prepare your accounts and you would be in a position to know well in
advance how much to set aside to meet your tax bills.




John Pointon
Accountant, Tax Consultant
"In business to grow your business"
 

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