Your accounting year

Your tax bill is based on your business profit. The business profit is the difference between your business income and your business expenses. You may need to make adjustments to the figures to reflect the tax rules. This is considered in the sections on income and expenses below.

To work out your profit, you need to prepare business accounts – a list of your income and expenses in the business. Apart from the year you start and the year you finish being in business, business accounts normally cover 12 months.

The tax year runs from 6 April in one year to 5 April in the next, but you don’t have to make your business accounts up to 5 April. You may make up your business accounts to any month end but once the decision has been made, it is difficult to change so it is important make the best decision for your business.

The rule to match your business accounts to a tax year is this: Your business accounting year which ends in the tax year will be taxed in that tax year.

Example: Julian prepares business accounts to 30 June. His business accounts for the 12 months to 30 June 2011 fall in the tax year which runs from 6 April 2011 to 5 April 2012. So his tax bills for the tax year to 5 April 2012 will be based on his accounts to 30 June 2011. (He will actually pay the tax for the tax year to 5 April 2012 like this: part by 31 January 2012, part by 31 July 2012 and any additional tax (or adjustment) by 31 January 2013).

If you want to keep things simple, and particularly if you are claiming tax credits, it makes sense to make you business accounts up to 5 April. HMRC will accept accounts to 31 March as if they covered the period to 5 April.