The simple answer to this question is yes, but as with anything accounting related it’s not entirely straightforward.
What’s the difference between accounting year and tax year?
The tax year is the fixed period used by HMRC to run all the Government finances. The national budget runs over this time frame and in a slightly historic quirk it runs from 5th April every year. The reason for this dates back to 1752, when the treasury decided on 25th March that the tax year should run for 365 days, which took it to 4th April 1753. The leap year of 1800, then added a further day making the end of the tax year 5th April and that’s where it has remained.
The accounting year will be specific to your company and may be linked to a number of obvious milestones. Some companies run their accounting year to coincide with the tax year (as noted above), whilst others prefer to link to the calendar year and run from 1st January to 31st December. The other common situation is that your accounting year is dictated by the date the company was started. So, if your company began trading in February, this may represent the start of the accounting year and run through to the end of January.
What is an accounting year?
A standard accounting year will be 365 or 366 days, subject to leap years. It will be further divided into periods, normally twelve, one for each month, but this can be 13 (4 week periods) or as many as 53 – actual number of weeks in a year.
The accounting year is what creates your statutory reporting to Companies House and provides a consistent and measurable period for financial reporting. As noted above, there is no fixed start and end date that you have to comply with from the government’s perspective, but it may be that your particular accounting year needs to reflect another factor e.g., a parent or subsidiary company’s reporting periods.
Changing your accounting year
If you started your business in February and that has historically remained the beginning of your accounting year and you decide you want to change it, there are a couple of ways that you can achieve this. It is possible to have a year which is not a full 12 months/365 days and that can be shorter or longer. There comes a point however, where practicality kicks in. So, using this example, if you wanted to align to the tax year, you would start on 1st February as usual but run a 13 month year ending on 31st March the following year. Thereafter your year would be April to March. This option is preferable to running a one month year solely covering February. However, as you’ll see below, the maximum length of an accounting year is 18 months and so some changes may require a shorter year e.g., if you wanted to move from end of May to end of December for instance.
There are some rules you need to be aware of around changing your accounting year end:
- Firstly, you have to apply online to Companies House to make the change. This is so they know when to expect your filings.
- You cannot change your year end if your accounts are already overdue
- You can only extend your year to a maximum of 18 months
- You can only change your year end once every five years, except in some exceptional circumstances e.g., administration or acquisition of the company.