Should You Be Aligning Your Year-End with the Tax Year

The Benefits Of Aligning Year Ends

Clearer Financial Picture

If you're a small business owner, aligning your year-end with the tax year can simplify your financial picture. It makes it easier for you to understand your personal income alongside your company profits. This alignment also benefits external parties like mortgage lenders or banks, who often want to see a clear picture of your earnings and company profits together. When your year-end dates match, you can more easily relate your company's profits to your tax return earnings. As a sole proprietor, your dividends will likely align with your tax return, simplifying your financial planning and reporting. While mortgage lenders and banks can handle different year-end dates, having matching dates provides a clearer, simpler financial snapshot.

Single Review Point for Tax Planning

Having both your company and personal tax years end simultaneously creates a single review point for tax planning. This synchronicity aids in planning tax-efficient withdrawals from your company and simplifies the process of working with your accountant. A single reference point helps visualize both personal and business tax matters at once, which is especially beneficial if you meet with your accountant annually. This approach provides a comprehensive overview of your financial situation in one go.

Streamlined Submission Deadlines

Aligning your year-end dates means your submission deadlines for various financial documents will be close together. Typically, this results in:

  • Your personal accounts
  • Your personal tax return
  • Your business accounts
  • Your business tax return

These deadlines often fall around the end of December for business and the end of January for personal tax, making it easier to manage and pay your taxes within a similar timeframe.

The Downsides of Aligning Year-End with Tax Year

Potential Cash Flow Issues

With combined reporting deadlines, tax payment dates also converge. This can pose a cash flow challenge, as multiple large payments may be due within a short period. While diligent tax saving can mitigate this issue, real-world financial pressures might make staggered tax payments more manageable.

Accountancy Bottlenecks

Many companies opt for a 31st March year-end, leading to a busy period for accountants. This can result in longer lead times for receiving your annual accounts, as accountants handle numerous clients simultaneously.

Christmas Rush

Aligning your company year-end with the tax year can add to the pre-Christmas rush. A 31st March year-end means your limited company accounts are due by the end of December, reducing preparation time due to the holiday season. Last-minute submissions to your accountant can create additional stress during the holiday period.

Managing on Your Own

If you're handling your accounts independently, managing two sets of tax returns and accounts simultaneously can be daunting. The last thing you want during the holidays is to be bogged down with financial paperwork.

For the Tax Savvy

While a single review point simplifies tax planning, an additional review point can offer more oversight and flexibility. To take advantage of this, you need to be proactive and work with an accountant who reviews your affairs more than once a year.

What’s the Best Approach?

There's no one-size-fits-all answer. As an accountancy firm, we maintain regular contact with our clients, regardless of their year-end dates. Many accountants prefer clients with non-tax-year company year-ends to avoid the holiday rush, yet numerous clients still choose a 31st March year-end for various reasons. If you decide to change your company’s year-end, it can be done online with Companies House. Be mindful of time limits and the impact on filing and payment deadlines. Additionally, consult HMRC to ensure your company tax returns cover the correct period. In summary, choose the approach that best fits your financial management style and consult with your accountant to make an informed decision.