Accounting Reference Date – What is it, and how to change it?
Get the lowdown on what the accounting reference date is, why it’s so important, and how you can change it.
“I’m late! I’m late! For a very important date!”
Okay, so seasoned Lewis Carroll scholars will tell you that the White Rabbit is not worrying about his accounting deadline – but there’s no doubt that if you’re running a small business, the Accounting Reference Date (ARD) is a very important date indeed.
This guide will get you clued up on the accounting reference date, covering:
What is the accounting reference date?
In very simple terms, the accounting reference date is the end of your company’s financial year.
For new companies, this is decided by Companies House (the people you have to register your company with).
This is a little bit complicated to work out, but it’s the last day of the month that’s 12 months on from the date you registered your company (the incorporation date).
So, if you started a company on 24 June 2020 for example, your first accounting reference date would be 30 June 2021.
The table below gives more examples, so you can see just how it works.
|Company incorporation date||First accounting reference date|
|5 January 2020||31 January 2021|
|17 May 2020||31 May 2021|
|1 November 2020||30 November 2021|
This means that your first accounting reference period (i.e. the first year of your accounts) is likely to be longer than a year, but subsequent periods will then be 12 months exactly from your accounting reference date.
However, rather annoyingly, HMRC’s corporation tax systems can’t cope with accounting periods of more than 12 months – so you’ll need to file two corporation tax returns in your first year of operation.
So, if we take the 5 January 2020 date from the table above, the two tax returns would need to cover:
- 5 January 2020 – 4 January 2021
- 5 January 2021 – 31 January 2021
What about sole traders/partnership companies?
Why is the accounting reference date so important?
The accounting reference date has a rather basic importance on one fairly self-explanatory level: it’s the date you’re going to work out your accounts to.
However, what’s really important is how this date affects other deadlines – it decides when you need to file your accounts to Companies House, and when you need to file your corporation tax return.
Important! - HMRC and Companies House
In many cases, your corporation tax return and company accounts will cover the same period, meaning things are (relatively) straightforward.
However, if the date your company became active (i.e. started trading or receiving income) is different to your company start date, then you’ll need to deal with two separate accounting periods – one for your company accounts, and one for your corporation tax.
Speaking of deadlines, let’s tackle the company accounts first.
The following guidelines apply to private companies and Limited Liability Partnerships (LLPs). Public Liability Companies (PLCs) have more stringent filing requirements – see the gov.uk page on accounting reference dates for details on this.
The standard deadline for filing your company accounts is nine months from your accounting reference date.
This means that your first company accounts will be due 21 months after your incorporation date.
To show how this works, let’s take the incorporation date we were discussing above – 5 January 2020.
These would be the important dates for the first accounts:
|Private company incorporated||5 January 2020|
|Accounting Reference Date||31 January 2021|
|Accounting Reference Period for first accounts||5 January 2020 - 31 January 2021|
|Last date for filing!||5 October 2021|
As long as you don’t change your accounting reference date, your accounts filing date will then stay constant, meaning you will file accounts by 5 October 2022, 2023 etc.
Ok, now let’s move on to corporation tax.
Our comprehensive guide to corporation tax covers this topic in far more detail, including instructions on how to submit a corporation tax return, and how to reduce your corporation tax bill.
For now, we’ll just focus on two key deadlines – the deadline for filing your corporation tax return, and the deadline for paying your corporation tax.
In short, unless it’s requested earlier by HMRC, your corporation tax return is due 12 months from your accounting reference date.
The deadline for paying your corporation tax is nine months and one day from your accounting reference date.
So, going back to the same example, these would be the corporation tax deadlines for a company incorporation date of 5 January 2020.
|Private company incorporated||5 January 2020|
|Accounting Reference Date||31 January 2021|
|Corporation Tax Filing Deadline||31 January 2022|
|Corporation Tax Payment Deadline||1 November 2021|
This all assumes that your company begins trading on the same day it was incorporated.
This gov.uk page gives more information on this.
Important! – File and pay corporation tax at the same time
There’s no doubt that all this is pretty complicated, and the last thing you want to worry about while you get on with running your business.
Thankfully, cloud-based accounting software can really help – the likes of Sage, FreshBooks, and QuickBooks all have affordable packages that make doing your accounts a doddle, and save countless hours of admin.
What happens if I don’t send my accounts on time?
In three words? You get fined.
If you file your company accounts late, the fine starts at £150 for one day late, and can go up to £1,500 if you really don’t get your act together and file over six months late. These penalties are higher for public companies.
It’s a similar story for corporation tax, with penalties starting at £100 for submitting your tax return one day late. Severe lateness is punished by HMRC estimating your corporation tax bill, and then fining you either 10% of that amount (for returns that are six months late) or 20% (for returns that are 12 months late).
HMRC also takes a hard line on incorrect information in a company tax return, with fines varying between 15% and 100% of the extra tax due. The exact percentage will vary depending on whether HMRC believes the error was deliberate, whether you attempted to conceal the error, and whether you owned up or the error was spotted by HMRC.
If you’re worried about making mistakes in your company accounts or on your company tax return, then cloud-based accounting software could really help. You’ll be able to update your accounts as you go, and always have a digital record of your financial activity to hand.
To get a good idea of the different options, check out our guide to the best small business accounting software.
How can I change my accounting reference date?
You can change your accounting reference date online through the Companies House website. Alternatively, you can download a form, complete it, and post it to Companies House.
You’ll need the following information:
- Company number
- Full company name
- Date of accounting reference period (this is either the current period or the previous period)
- New accounting reference date
- Signature of director, company secretary, or other authorised person
There are, however, some important rules about when you can and can’t change your accounting reference date.
Shortening your company’s financial year
Companies House are pretty laissez faire when it comes to shortening your financial year – you can do as many times as you like, and you can even shorten it by one day if you fancy.
The only exception to this is your first set of accounts, which have to be for a minimum of six months.
Extending your company’s financial year
However, much stricter restrictions apply when it comes to increasing the length of your financial year.
You can extend by up to 18 months (or even longer if your company is in administration), but – and this is the important bit – you can normally only do this once every five years.
There are three exceptions to this:
- If the company is in administration
- If the change is to match the dates of a subsidiary or parent company (either a small or larger company that has the same owner)
- If special permission is granted by Companies House
Finally, you cannot change your accounting reference date if your accounts are overdue.
Any changes you make should also be reported to HMRC, as they will also affect your company tax return – extending would require you to file two corporation tax returns, for example.
Choosing the right accounting reference date for your business
Choosing the right accounting reference date for your business is an important decision, and there are both practical and tax considerations.
Let’s talk practicalities first – assembling your company accounts and company tax return is a lot of work and, if you can, it’s good to pick a period when you’re likely to be less busy and have the time to complete these tasks properly. Of course, the other option is to hire an accountant to take care of things, so you may want to consider this step if your business grows rapidly, or takes up all the hours of your day.
There are also important tax implications.
As Donna Torres, Director of Small Business at cloud-based accounting software company Xero, points out:
“Changing the accounting reference date for a company can be beneficial – for instance, to coincide with the end of the tax year. This may make completing tax returns easier, as you would only have to use one set of company accounts for the twelve-month period.”
This is important because as a company director, you have to balance the tax implications for our company and yourself. Any income you take out of the company, either as salary or dividends, will be taxed – and, as an individual, you are subject to the standard tax year of 6 April – 5 April the following year.
As John Cumberlidge, a Chartered Accountant Scotland (CA) and Chartered Tax Advisor (CTA) who is the co-founder and Technical Director of small business specialist Moose Accounting, points out, planning your financial year to take advantage of the £12,500 personal allowance can significantly reduce your tax bill.
As director salaries are deductible from the company income you pay corporation tax on, clever planning in this department can also help your company reduce its tax obligations.
John gives the example of a company with an accounting reference date of 30 April that pays the director £1,000 a month.
In the financial year to 30 April, this total of £12,000 would then be tax-deductible for corporation tax.
Then in the following year, at the end of March 2020, the company will have paid £11,000 (through the regular salary of £1,000 a month). A regular payment of £1,000 in April 2020 would take the deduction from corporation tax to £12,000.
However, if in April 2020, the company makes a one-off director salary payment of £12,000 (instead of the regular £1,000 monthly salary payment), the corporation tax deduction would be increased to £23,000 – meaning a tax saving in excess of £2,000.
The excess payment of £11,000 is then taken as a director’s loan and, from May to March, no salary is paid to the director – but withdrawals of £1,000 a month can be made from the loan account.
In April 2021, a director’s salary of £12,000 is paid, and the process starts again.
Under this system, the director is always treated as having received remuneration of £12,000 a year, and stays under the annual personal allowance of £12,500 (and so doesn’t have to pay income tax).
There are big tax benefits for the company too, though.
Of course, the situation for every company is different, and there’s no such thing as a one-size-fits-all solution when it comes to tax efficiency.
There are also a couple of caveats to this strategy. Payment of employee National Insurance contributions is advanced slightly, and HMRC could seek to collect tax on the April payment. This would be unusual, though – technically a refund would be receivable each month that a nil return (i.e. there was no payment) was submitted, and HMRC do not normally seek payment that relies on the submission of a tax return to collect any tax.
However, this does illustrate how much picking a certain accounting reference date can benefit your company.
Key Points - What you really need to know about the accounting reference date
Busy running your business? We get it. Here’s a quick summary of all the important points when it comes to the accounting reference date:
- The accounting reference date is the end of your company’s financial year
- For new companies, this is the last day of the month that’s 12 months from the incorporation date of your company (e.g. a company incorporated on 24 June 2020 would have their first accounting reference date as 30 June 2021)
- Your company accounts need to be filed nine months from your accounting reference date, so your first company accounts will be due 21 months from your incorporation date
- Your corporation tax return is due 12 months from your accounting reference date
- The deadline for paying your corporation tax is nine months and one day from your accounting reference date
- You should treat these as one deadline, and try to submit your return and pay at the same time
- Filing your company accounts/corporation tax return late carries respective minimum penalties of £150 and £100
- You can change your company’s accounting reference date through the Companies House website
- You can only extend your company’s financial year once every five years
- Your choice of accounting reference date can have significant tax implications
Finally, using cloud-based accounting software can really help you get on top of your finances, and stop you stressing out about the accounting reference date.
If, however, you’re just starting out and counting every penny, then have a good look at our guide to the best free small business accounting software.