Changing company accounting periods

The most common methods of incorporation is by using Companies House WebFiling or Company Formation Agent despite the fact that paper submissions are still accepted. HMRC will be automatically notified by Companies House of a newly formed company. Then HMRC issue a ‘Notice to deliver a tax return’, confirming the reporting date of the first accounts.

In most cases, a company’s notice period coincides with an accounting period and a return is being submitted for a matching period. The first accounting period most likely will cover more than 12 months. This is because the starting date is the date that the company was incorporated ending on the ‘accounting reference date’, i.e. the last day of the month the company was set up. In the following years, the accounting reference date will usually cover the company’s financial year.

Example 

Let’s look at the following example. The company is incorporated on 11 May 2022. In this case, its accounting reference date will be 31 May 2023 and the first accounts will cover 12 months and 3 weeks. In the following years, the company’s accounts will stand from 1 June to 31 May.

Whilst the Companies House sets the accounting period dates, the dates that cover the first tax return will depend on whether or not the company started trading on the same day of its incorporation. The reason is that a company usually first comes within the charge of corporation tax when commencing a trading activity. However, an accounting period will also be considered as starting when the company acquires a source of income. That could be the opening of an interest-bearing bank account.

Shortening the accounting period

The period covered by a tax return (the ‘accounting period’ for Corporation Tax) can’t be longer than 12 months. So in order to cover the first accounting period, you might need to fill out two tax returns. Taking the previous example, the returns would be filled for the year ended 10 May 2023 and for the period 11 May 2023 to 31 May 2023. That means that there will also be two payment deadlines. 

Only one return will need to be filled in the following years, which usually covers the same financial year as the accounts. When submitting two tax returns, with one of them being for just a few weeks or days, it can be possible by applying to shorten the accounting period to the end of the month before. In the example above, when applying to shorten the accounting period so that the end date is the last day of the month before, only one set of accounts is required for the period 11 May 2023 to 30 April 2024 and also only one tax return and one tax payment.

If the submission of accounts to Companies House is late, then an automatic penalty of £150 will occur. There are very few successful appeals against these penalties and the way to avoid them is to submit the accounts on time. If for whatever reason, you won’t be able to meet the deadline, you can avoid this penalty by shortening the accounting reference date, gaining an additional three months to submit.

When the accounting reference date is shortened, the new deadline for filing accounts at Companies House becomes the longer of:

· Nine months from the new accounting reference date; or

· Three months from the date of receipt of the application form AA01 (change the accounting reference date).

So even if the accounting reference date is shortened by just one day, you will gain an additional three months to submit the accounts. In addition, the rules allow those accounts to be made up to seven days on either side of the accounting reference date so they can be submitted as prepared with no alterations required. 

Importantly to remember that the change to the AA01 form must be made before the date that the accounts are due initially and this method can’t be used after the filing deadline has passed.

Example

A company’s year-end (Accounting Reference Date) is 31st March 2022. The deadline for submission to Companies House is 31 December 2022. The directors can’t submit the accounts by that date and wish to apply to shorten the accounting period.

The application is made to Companies House on Application form AA01 to shorten the accounting reference date by one day to 30 March 2022. As accounts can be made up to seven days on either side of the original accounting date, the accounting reference date remains as 31 March 2022. The revised submission deadline will be three months from the date that the AA01 is filed. In this example, the AA01 form was submitted on 23 December 2022 so the revised filing date will be 22 March 2023. The next set of accounts for the year ended 31 March 2023 would need to be filed by 30 December 2023.