????Confused by all the “years” terminology that comes with running a business?
????Here they are in layman terms, nice and easy, no faffing with accounting terminology....
????Tax year - 6th April to 5th April. As the name suggests this relates to taxes. You may have heard of the word fiscal year, it’s the same. This is the date range that your self assessment is typically reported on.
????Accounting year - this can be anything you like. It’s the 12 month period (could be shorter, could be longer but we’ll keep it simple for this explanation) that you decide to prepare your accounts.
????When you set up a limited business, your first year will be determined by date of incorporation e.g incorporated 1st August 2020, the accounting year will be 1st August 2020 to 31st July 2021.
????This can be changed. Choose wisely though as companies pay tax 9 months + 1 day following the accounting year, you know self assessment tax is due end of January and you might also have VAT due so could find yourself paying 3 lots of taxes early in the year ????
????Sole traders can have an accounting year different to the tax year if they choose to however that is likely to result in overlap profits (another subject).
????HMRC allow sole traders who chose 31st March as their year end to be treated as having an accounting year end that matches the tax year end.
????Financial year - very common for businesses to have this as their accounting year as well, 1st April to the following 31st March.
1st April is typically when new taxes and rates are changed by the government e.g Corporation tax.
