When should i end my year? - Soletrader help

[simpson7647]

hi there, i am a sole trader and looking to start up my own business.

I'm looking to register with H+M Revenues very soon but first of all, i am in need of registering with my Natwest business Account.

Although a question i get is when would i like my financial year to end or something.
When should i do??
obviously i could do a year from today but would a date to correspond with the end of the financial year work better or?

many thanks

 

[Andrew @ PLA]

MOST clients on our books who operate as a Sole Trader use either 31/03 or 05/04 as their Year End date.

 

[MyAccountantOnline]

hi there, i am a sole trader and looking to start up my own business.

I'm looking to register with H+M Revenues very soon but first of all, i am in need of registering with my Natwest business Account.

Although a question i get is when would i like my financial year to end or something.
When should i do??
obviously i could do a year from today but would a date to correspond with the end of the financial year work better or?

many thanks

Hi

If you intend to prepare your own accounts and tax returns you'll probably find 5 April (the same as the tax year) the easiest.

If not I'd suggest 12 months from when you start.

The rules on how profits are taxed are a bit complicated but if you have a year end that isnt the same as the tax year you can maximise the gap between earning profits and paying the tax.

 

[MyAccountantOnline]

PS If you are going to look after your own tax affairs this may be helpful - http://www.hmrc.gov.uk/helpsheets/hs222.pdf

 

[simpson7647]

thankyou all for your help.

I'll be hiring out an account, nicola, you are one i believe?

thanks

 

[Truemanbrown]

Under the self assessment rules, most accountants would advise sole traders to use a 30th April year end.

The main benefit is that if you prepare your accounts on a timely basis, you should get a further 12 months notice of what your tax liability is going to be (especially if profits are rising).

 

[mr. mischief]

There is a full discussion of this issue on my website. If you expect year 2 profits to be higher than year 1, 30 April is the clear choice. You get a cash flow benefit on tax payments plus you get longer to prepare and file your accounts.

In my view, the only other year-end which makes sense - assuming you make up your accounts on a monthly basis like 90% of my clients - is the 31 March.

This is because HMRC accept 31 March accounts as if they were 5 April - so why fiddle about with the extra 5 days which only arises due to the switch to the Gregorian calendar back in 1752 or something?

Some of my clients who do fiddle around with those 5 days - apart from the hassle - make small mistakes with it.

 

[Williams lester]

Under the self assessment rules, most accountants would advise sole traders to use a 30th April year end.

The main benefit is that if you prepare your accounts on a timely basis, you should get a further 12 months notice of what your tax liability is going to be (especially if profits are rising).

I don't think 'most' accountants would advise this. Every client is unique, what works for one may not work for another.

Clients are very quick to forget the helpful tax advice they initially received when presented with a huge tax bill if the business ceases or is sold.

 

[MyAccountantOnline]

thankyou all for your help.

I'll be hiring out an account, nicola, you are one i believe?

thanks

Glad to have helped.

I am indeed an accountant and will be very happy to speak with you/discuss matters via email if you want to contact me

 

[David Griffiths]

Under the self assessment rules, most accountants would advise sole traders to use a 30th April year end.

The main benefit is that if you prepare your accounts on a timely basis, you should get a further 12 months notice of what your tax liability is going to be (especially if profits are rising).

And the big disadvantage is that some years down the line you can have a much bigger tax bill because the overlap profits that arise in year 1 are much lower than the final profits of the business particularly if you are trading successfully and sell out. That can easily push somebody into higher rates of tax.

I wouldn't be in a position to say what "most accountants" do, but I explain the pros and cons to my clients and almost without exception they elect to use 31 March because they can understand the way in which accounts profits relate to their tax charge, and it removes the fear of a most unwelcome hike in taxes in their last year.

Two years ago one of my clients was severely bitten by this. We'd taken him over with a 31 October year end, and it was impractical to change this. He'd never been a higher rate taxpayer he got clobbered by being assessed on profits at his 2008 level with a measly deduction for profits earned when he first went in to self assessment when it started (1996?) and that meant that he paid higher rate tax on £20,000. There is no way that any saving in year 2 would have been that big. These days the situation can be much worse because of the steps at £100k and £150k

I wonder if "most accountants" explain this risk, or monitor it year by year.

 

[elaine@cheapaccounting]

These days the situation can be much worse because of the steps at £100k and £150k

I wonder if "most accountants" explain this risk, or monitor it year by year.

With sole trader profits at these types of levels I generally discuss the advantages of trading under a limited company - especially with the realignment of CT rate & basic tax rate from April 2011.

 

[David Griffiths]

With sole trader profits at these types of levels I generally discuss the advantages of trading under a limited company - especially with the realignment of CT rate & basic tax rate from April 2011.

Of course, but overlap profits on cessation can get in the way of incorporation

 

[Deleted member 59730]

It really depends on whether you are a seasonal business or not. I am seasonal with peaks in the summer and at xmas so I chose the last day of October because it is my quietest time and I can easily analyse how the season has been.

IMHO 5th April is the silliest time if you have any seasonal considerations and that includes local councils. Imagine a greeting card shop with 2 Easters in one year and then none in the next. Imagine a Council with an annual budget for Easter tourist promotion.

And do you know why the government works to 5th April? It dates back to when we adopted the Gregorian calendar 400 years ago.

 

[MyAccountantOnline]

It really depends on whether you are a seasonal business or not. I am seasonal with peaks in the summer and at xmas so I chose the last day of October because it is my quietest time and I can easily analyse how the season has been.

IMHO 5th April is the silliest time if you have any seasonal considerations and that includes local councils. Imagine a greeting card shop with 2 Easters in one year and then none in the next. Imagine a Council with an annual budget for Easter tourist promotion.

And do you know why the government works to 5th April? It dates back to when we adopted the Gregorian calendar 400 years ago.

You make a very good point indeed - another reason why, in my opinion, you really cant generalise on the 'best' year end without knowing an individuals circumstances and taking all relevant factors into consideration.

 

[Rhodes100]

Before I read the thread I had in mind practical issues rather than accounting issues.

Not ending your financial year when your business is busy, as you have to carry out the stocktake and provide the information to your accountant in a timely manner when you have plenty of other things to do.

From the point of view of stocktaking clearly it would be better to have a year end just before you stock up, (a fashion boutique comes to mind), as it it does not take as long to count £10k stock compared to £40k of stock.

Also to have the year end before your busy period if your trade is seasonal, that way you can delay the payment of tax on the profits you make to the next year.

I remember when I was auditing that there were some year ends that ended on 31 December, (I had to stand in a muddy field counting cars with the companys staff members on 1 January) if you are reliant on staff to count your stock perhaps this is not a good choice during a holiday period as you might have to pay your staff double time to stand in a muddy field with their auditor.