The coming changes to the way businesses report to HMRC may prompt some to move their accounting date to 31st March.
“Under the ‘Making Tax Digital’ (MTD) proposals all businesses will, within the next 5 years, be required to keep records in a digital format. They will then need to report their data to the taxman every three months, rather than annually as they do now”, Brearley & Co Tax Manager, Andrew Cowe, explains. “The precise date for any particular business will depend upon it’s turnover, but the first ‘tranche’, as it were, will go over to the new system from the first period which starts after 5th April 2018”.
“Therefore, if your accounting date is, say, 30th April, you may be on the new system with effect from next year, but businesses with a 31st March year end won’t be affected until 2019.”
”Like many accountants, we have serious concerns that HMRC themselves are simply not ready for this change on any level. We think that there are likely to be numerous teething troubles with the system, and therefore giving it another year to ‘bed in’ before it affects you, may well be a wise move.”
Regardless of the forthcoming developments, Brearleys consider that there are other reasons why a switch to a 31st March year end may prove beneficial. Cowe continues, “If you make your accounts to any month end date apart from 31st March, you will have paid tax twice on part of your first year’s profits. Although you get a matching deduction later, either when you move your year end date or finish the business altogether, that is on the same amount as was taxed twice, which by that time will be worth less due to inflation. Therefore in real terms you will pay more tax than a business with a 31st March year end.”
The firm also point out, however, that tax is only one consideration. “Don’t let the tax tail wag the commercial dog”, says Cowe. “There may be numerous other reasons why a different year end is considered appropriate. However if that is not the case, there certainly can be advantages to moving your accounting date to 31st March”.
Andrew Cowe, Senior Tax Manager, Brearley & Co