Company's first accounting period

[hippo85]

Hello

I am just looking for a bit of advice regarding HMRC and my limited company and wondering if somebody would be so kind as to help me.

As per HMRC requirements, I am trying to notify them of the business now actively trading (as we have recently launched our website), and am being asked as to when our first accounting period began. My understanding is that this is when the business conducts activity that acquires an income or results in the acquiring of an asset that will produce income, but we have made purchases over the past 2 1/2 years whilst trying to set up the business and only registered as a limited company on the 1st March 2016, so am unsure as to what this date should be, especially given that I believe that all pre-trading expenses should be added to my accounts on the first day of trading.

Also, I have noticed on my Corporation Tax "Important Dates" letter that our accounting period end dates are the 28th February 2017 and the 31st March 2017. I know it's not such a big deal, but is drawing up two sets of accounts for the sake of one month necessary?

Can anybody point me in the right direction please?

Thanks!

 

[PCD]

As the company was incorporated on 1st March 2016 Companies House will have set 31st March (the end of the month of incorporation) as the accounting date with the first accounts being for the period from 1st March 2016 to 31st March 2017.

For Corporation Tax purposes the period of account is a maximum of 12 months so if the trade started on 1st March 2016, and the accounting date is not changed, accounts will be prepared for the 13 month period and then two Corporation Tax Returns prepared based on the accounts, one for the year ended 28th February 2017 and one for the period to 31st March 2017. It can be a bit more work to split the accounting period into two Corporation Tax Returns but it is not usually a problem. It can however be avoided by changing the accounting date to 28th February 2017 so that the first accounts are for a year and only one CT Return is required for the period. Alternatively it might be the case that the company did not start trading until after 1st April 2016 in which case although the accounts cover a period of 13 months the there is only one CT period of account as it does not start until the trade starts.

It can sometimes be difficult to determine when a business commenced but a company cannot have commenced a trade before its incorporation date. It might be argued that the trade only commenced when you were first in ready to make sales (when your website was launched?) or when the company made its first purchase (1st March 2016?). Generally I would be inclined to keep things simple and go with the incorporation date unless there is a desire to delay the first accounts and extend the accounting period.

With the first accounting period coming to an end soon you might also like to consider whether any salaries or dividends for 2016/17 are appropriate, if you have not already done so. Dividends can only be paid out of profits so might not be possible yet.

 

[hippo85]

Hello PCD

Thanks for your response - it's extremely appreciated.

If it helps any, our company started trading on the 15th November 2016, our incorporation date is the 1st March 2016 and we started making purchases pre-trading (to set up the business) back in 2014.

So based on what you mentioned previously, would you agree I do the following:

Date that the company will become/became active - 15 November 2016
Date on which the company's first accounting period began - 1st March 2016

On this basis, would you be able to advise as to what date I should tell the HMRC that I intend to prepare my accounts for?

Thanks in advance

 

[Scalloway]

If you have made purchases that will be introduced into the company on the day it was incorporated I would do accounts for the full period and do the split for Corporation Tax purposes.

What does your accountant say?

 

[PCD]

If you tell HMRC that the company commenced trading on 15th November 2016 this is when the CT period will start and no CT Return should be required for the period up until then. Rather than doing accounts for a four and a half month trading period you could change the accounting date. You could extend the accounting period to a period of 18 months, so to 31st August 2017. Alternatively you could shorten it to say 31st October 2016 and prepare separate accounts for this non trading period. If no transactions have gone through the company in the period these accounts can be simple dormant company accounts but if there have been transactions proper accounts would be required.

As Scalloway says probably best to discuss the options with your accountant.

 

[hippo85]

Thanks for the advice all. To be honest, I have been doing the books myself but am no qualified accountant by any stretch of the imagination! I'll see if I can get in touch with somebody - cheers!