Farley And Partners

The importance of the accounting date for your business

It is also important to choose the right accounting date for your business. Is there a time of year when it is more convenient to close off your accounting records, ready for the preparation of your financial statement? What would be the best time of year for stocktaking? To what extent is your business seasonal?

From a tax viewpoint, the choice of a year-end early in the tax year for an unincorporated business usually means that an increase in profits is more slowly reflected in an increased tax bill. This can, however, backfire when profits reduce, as the reduction in tax is similarly delayed, and can leave you with a large tax liability when you retire or scale down your business.

Because of the rules about how profits are taxed in the early years of a business, some profits may be taxed twice at start up. A record of this is kept (called overlap profits), and the amount is deducted when the business ceases or changes accounting date, although if profits have fallen sharply, the benefit of this may be limited. In cases where businesses see a significant permanent fall in profitability, it is often wise to change accounting date to 5 April to benefit from the overlap profits sooner.

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