You can change your company’s year end (also known as its ‘accounting reference date’) to make your company’s financial year run for more or less than 12 months. However, you can only do this for your company’s current financial year or the one immediately before it.
Please note that changing your company’s year end will also change your deadline for filing accounts, unless you’re lengthening your company’s first financial year.
You can shorten your company’s financial year as many times as you like – the minimum period you can shorten it by is 1 day.
You can lengthen your company’s financial year:
• To a maximum of 18 months, or longer if your company is in administration
• Once every 5 years
• You can only lengthen the financial year more often than every 5 years if:
• The company is in administration
• You’re aligning dates with a subsidiary or parent company
• You have special permission from Companies House
You can’t change your company’s year end when its accounts are overdue.
HMRC must go along with a change of accounting date if it’s valid as per the law. However, it imposes rules so that the change fits with the tax system and prevents avoidance. The key rule being, that an accounting period for CT purposes cannot exceed twelve months, though it can be shorter. The consequences can be tricky.
Example – Short period
John Doe Ltd shortens its current accounting period from twelve months to 31 July 2019 to eight months to 31 March. It must pay any CT for the new shortened period no later than nine months and one day after 31 March 2019 and submit its tax return on or before 31 March 2020. Shortening an accounting period doesn’t usually cause problems with HMRC but lengthening a period may.
Example – Long period
Jane Doe Ltd extends its current accounting period to end on 31 December 2019 instead of 30 June. Jane Doe must divide it into a twelve-month and a six-month period. The CT rules prescribe how this is done. Jane Doe’s first CT accounting period must be for twelve months (to 30 June 2019) and the second six months to 31 December 2019, and not the other way around. It must submit two CT returns, one for each period. However, what often catches people out is that the deadline for both returns is twelve months from the end of the new accounting date, e.g. for this example 31 December 2020.
For any further queries, please email us on info@cloudtaxltd.com.
You can also view HMRC’s guidance on the same.