Your financial year end (also called your “accounting year end”) is a key date in your business calendar. It’s when the financial year finishes for your business. Businesses have different financial year ends.
At your year end you should prepare annual accounts, detailing your sales, costs and profit/losses for the financial year. The figures in your annual accounts can help you complete your corporation tax return (if you run a company) or your self-assessment tax return (if you’re self-employed).
If you own or run a limited company, by law you (or your accountant) must prepare annual accounts and send them to Companies House and to any shareholders. You may also want to send a copy to interested parties such as your bank.
The small business guide to Self Assessment
Does Self Assessment apply to you? Read this guide for all you need to know, covering allowable expenses, how to keep good accounts, and the steps to complete your tax return.
Choosing your financial year end
If you’re self-employed, you decide your financial year end date. If you set up a company, Companies House will give you an accounting reference date to use for your accounts, which will be at the end of the month, one year later.
Either way, after your first accounting year end, the next one will automatically be a year later (unless you choose to change your year end).
Many businesses choose 31 December to match the calendar year. You may prefer 31 March, to tie in with the date when tax rates and rules usually change. Or you might aim to choose a quiet time of year for your business, when you have more time to sort out financial paperwork.
The date you choose can affect how soon you must pay tax on your profits, so you may want to take advice from an accountant on the best date to choose.
Year end accounts
The year end accounts you produce will depend on your requirements and those of Companies House, HMRC and your shareholders or any lenders.
Typically, your accounts include:
- a profit and loss account, showing how profitable your business was
- a cash flow statement, illustrating how money flowed into and out of your business
- a balance sheet, showing your company’s financial position at its year end
Limited companies must make sure their accounts give the information required by Companies House, in the correct format. Smaller companies don’t have to provide as much detail as larger ones.
Making it easy
You can produce annual accounts yourself, although many micro businesses (defined as with 10 or fewer employees, £316,000 or less on the balance sheet and with a turnover of £632,000 or less, according to HMRC) choose to pay an accountant to do theirs.
As well as saving time and ensuring accuracy, an accountant might be able to help you with tax planning and financial management.
Whether you use an accountant or not, you need to make sure your accounting records provide all the necessary information. It’s much easier if you have a well organised, regularly updated accounting system, rather than having to sort out everything at your financial year end.
It helps if you can tidy up any loose ends in the run up to your financial year end, for example by chasing up missing paperwork and outstanding debts.