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Accounting Date First year accounts

Accounting Date First year accounts

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I have a company that was incorporated on 18/07/2006 and has an accounting reference date of 31/07

Does the Accounting reference date have to be the end of a month?

To avoid having to do two corporation tax returns would it not be simpler to change the accounting reference date to 17/07
Mark Gosling

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Euan's picture
By Euan MacLennan
30th Aug 2007 15:16

Quite so!
Robin - 31st March is a poor choice of accounting date for your business for the reasons given both by Patrick about the timing of Easter and by Tony about the timing of the stocktake.

As to dividends, if they are declared after the year-end, it is not an adjusting post-balance sheet event so your balance sheet would remain strong with all the profits retained. If, however, you were to declare the dividends before the year-end for payment after, you would have to include them in the accounts.

Mark - I am sorry this thread has deviated away from your original question.

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Euan's picture
By Euan MacLennan
29th Aug 2007 12:12

It depends
... on whether you are more interested in making life easy for yourself or doing your best for your client (assuming you are an accountant).

No - the ARD does not have to be at the end of a month. CT returns cover CT accounting periods, the first of which runs for 12 months from the start of trading or to the ARD if earlier. If the company started trading on the day it was incorporated, you would indeed have to prepare only one CT return if you changed the first ARD to 17/07/07 or earlier, such as 30/06/07.

However, it is in the company's interests to save accountancy fees by having the first accounts cover a longer period, which will also benefit its cash flow. So, I would extend the first ARD to 31/12/07, making the company's first accounting period just short of 18 months. You would have to file the accounts at Companies House by 18/05/2008, being 22 months after incorporation. Although the CT on the profits apportioned to the first 12 months of trading remains payable 9 months after the end of those 12 months (say, on 18/04/08), the two CT returns do not have to be filed until 12 months after the ARD. If you use software, the 2 CT returns are produced automatically, but it is a quick job even if you do it manually.

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By AnonymousUser
29th Aug 2007 12:27

trading
you also need to consider when the company started trading which is not always the same date as incorporation.

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By Dave Collier
29th Aug 2007 13:20

Shortening may be beneficial
It may be beneficial for the company to shorten the period depending on the pattern of trading. If say it earned a big wedge of income in May/June 2007 you may want to shorten the first period to end on 30/4/07 to delay the payment of corporation tax.

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By robindr
29th Aug 2007 16:41

Another reason shortening may be beneficial ...
... I am involved in a new business that has a Christmas / Easter bias in trading. We have effectively just started trading but will file accounts made up to 31 March 2008, which I hope will encourage suppliers to be more generous with credit terms/limits come next Aug / Sept buying period.

It really is "horses for courses"!

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Euan's picture
By Euan MacLennan
29th Aug 2007 17:10

Well, maybe...
Robin - if you have only just started trading, your first accounts to 31st March 2008 will include only one of your peak periods (Christmas 2007). How confident are you that your suppliers will realise that your annual accounts effectively include only 6 months of trading? If you run your first accounts through for just one more month to 30th April 2008, they will also include Easter 2008 and therefore cover effectively a full year's trading. You would still have plenty of time to file the accounts by August and your suppliers would hopefully be even more impressed. If you have shortened the period to 31st March, do not worry - you can always extend it once!

Dave - I take the point, but how many businesses have such extreme peaks of profits? If you shorten the first accounts to 6 months, tax will be payable after 15 and 27 months. If you extend the first accounts to 18 months, tax will be payable after 21 and 27 months. The only cash flow benefit of shortening the first accounts to 6 months is postponing the tax arising in the second 6 months of trading from 21 to 27 months, at a cost of advancing the tax arising in the first 6 months of trading from 21 to 15 months. You will need a massive fluctuation of profits, at the present level of interest rates, to make this worthwhile.

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By AnonymousUser
29th Aug 2007 21:00

there are many variables to consider.
another is stocktake. if a company is involved in stocktaking at the year end, it is best to arrange the year end at a time when resources will be available.
for example, you don't want to be trying to organise a stocktake during your busiest period etc.

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By robindr
30th Aug 2007 11:21

Follow-up to Euan
Thanks for your comments. In fact Easter is in March next year, so these will effectively be a full year's trading. And I can pay a dividend on 7th April which won't diminish the published net worth until 2008-09 accounts.

Which makes me wonder, if I pay virtually all profits out as dividends before signing the balance sheet, should I record this as a post-balance sheet event!?

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By Anonymous
30th Aug 2007 12:41

not a good year end!
Surely a business with an easter peak in income/profits is not well advised to have a 31 March year end because at some time you are going to have a year with two easters, but more importantly you may also have a year with none, and hence a year of low profits.

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By Anonymous
29th Aug 2007 23:45

Accounting sate
Why not just have said the company started trading on 1st of Month on the CT41G and then decide to which month end you want to make your end taking into consideration the various points made below.

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