Running a business can be a tricky affair, especially if you’re doing it on your own. Freelancers who form a limited company suffer an even more profound bureaucratic nightmare in the form of additional paperwork and yearly submissions to HMRC and Companies House – although they get limited liability and extra tax-efficiency as a trade-off.
Everybody knows businesses run on yearly cycles, unfortunately not all “years” are created equal! If you operate your own limited company, you’ll have four separate “years” to deal with.
If you don’t know this one you probably shouldn’t be in business. The Calendar year runs from January 1st until December 31st – it’s the year that non-business-owning humans use.
Tax Year / Financial Year
The tax year or financial year is a twelve month period imposed by the Government. In the UK the tax year for personal tax runs from April 6th until April 5th the following year.
Sometimes called “Your financial year” (not to be confused with “the financial year”, above) or “Your Accounting Period”, your Company Year begins when you form your limited company and lasts (you guessed it) a year. Your Company Year will dictate when various returns and submissions are due to HMRC and Companies House.
Your first Annual Return, for example, is due nine months after the end of your first company year.
The length of your company year is not set in stone. If you or your accountant deems it necessary you can make your first company year run a little shorter or longer than twelve months in order to change the dates certain returns and submissions are due.
Corporation Tax Year
Your company’s Corporation Tax year will generally run for 12 months after your incorporation, and can only be for a maximum of 12 months. This means that the first Company Year may span two Corporation Tax years. For example, if I formed my company on 15th January 2012 and extend my first Company Year to finish on 31st January 2013, I would need two Corporation Tax “years” (the first from 15/01/2012 – 14/01/2012 and the second from 15/01/2013 – 31/01/2013). However after this initial funny business Company Years and Corporation Tax Years would align.
If there are changes in Corporation Tax rules or rates, the year for changes runs from April 1st until March 31st the following year. Confusing, isn’t it?
Photo by Ross Elliott