When you’re starting a business, it’s easy to get bogged down in financial deadlines — from filing taxes to paying taxes on time. This is especially true when dealing with the various, often confusing financial terms such as “fiscal year,” “fiscal year,” and “tax year.”
This article explains the meaning of the financial year, the history and practical application of the main financial timelines in the UK, to help you stay on top of your obligations as you get your business up and running.
What does “fiscal year” mean?
Also called the fiscal year, it refers to the 12-month period that companies use to keep track of their financial records and activities. Your fiscal year does not have to coincide with the calendar year (January 1 to December 31).
If you are a limited company owner, prepare your financial statements based on your financial year. They also have an “accounting period” for paying corporation tax, which usually covers the same period as the financial year.
The UK government has its own financial year, which runs from April 1st to March 31st of the following year.
Tax year compared to the UK financial year
New corporate tax rates and rules typically come into force at the start of the UK government’s financial year. For example a new one Corporate tax rate can begin on April 1, 2024.
Many limited companies choose a financial year end of March 31st to align with the UK government tax calendar. This simplifies their corporate tax calculations as they can use a single set of rates for the entire year.
Importantly, the financial year is different from the UK government’s tax year, which runs from April 6th to April 5th of the following year.
The tax year extends over two calendar years, which is why it is usually referred to by both years. For example, the tax year from April 6, 2024 to April 5, 2025 is referred to as tax year 2024/2025.
History of the financial year in the United Kingdom
The reason the UK financial year runs from April to March is because of its agricultural history.
In the mid-17th century, the British were still using the Roman Julian calendar (named after Julius Caesar), while the rest of Europe had already adopted the more accurate Gregorian calendar by the 16th century.
Due to the Julian calendar, the British celebrated the New Year on March 25, which also marked the start of the financial year.
When the Gregorian calendar was finally switched to in 1752, there was an 11-day difference between the old and new calendars. To ensure that the government did not miss out on tax revenue this year, the Ministry of Finance changed the start of the fiscal year to April 5, making it a full 365 days since the previous fiscal year.
This system remained in place until 1800, when leap years had to be taken into account. The start of the tax year was then postponed to April 6th.
Despite moving the calendar year to January 1st, the UK government has decided to keep the start of the tax year on April 6th. This timing is more aligned with the agricultural cycle and peak tax collection season.
Can you choose your fiscal year?
Companies without legal personality
If you are a sole proprietor, you can choose any period of 12 months as your financial year. However, if you want to prepare your self-assessment tax return, you will need to calculate your income and expenses using the tax year as the base period — April 6–5.
The tax base reform came into force on April 6, 2024 and affects all partnerships whose financial years do not correspond to the tax base (including sole proprietors and partnerships).
The reform was introduced to simplify reporting under Making Tax Digital for Income Tax Self Assessment, which will come into effect for certain sole proprietors from April 6, 2026.
For most unincorporated businesses, it makes sense to match the fiscal year and tax base period to simplify tax preparation. If you are affected by the base period reforms, your best bet is to seek advice from an accountant or other tax professional.
Limited Liability Companies
Unlike individuals, limited companies have more flexibility.
Companies House automatically sets your company’s financial year end to a full year after the month in which you incorporated the company. However, you can do this too Change your company’s financial statements.
Your company’s first accounting year usually lasts a little longer than 12 months. This is because your start date is the date the company was incorporated and your end date is the “accounting date” set by Companies House – the last day of the month in which the company was incorporated.
To give you an example, suppose your company was founded on June 5th, its balance sheet date would be June 30th of the following year. So the first financial year would be 12 months and 26 days. However, starting from the second year, your company’s fiscal year would be 12 months long, running from July 1st to June 30th.
Your company must file its annual accounts for the financial year with Companies House within 9 months of the end of the financial year. For example, if your company’s last fiscal year ended on June 30, 2024, the financial statements would be due by March 31, 2025.
There are industries that benefit from using different fiscal years. If your company operates a seasonal business, it may be beneficial to align your fiscal year with your income and expenses. For example, retailers often experience their busiest time around Christmas. For this reason, many choose to end their fiscal year on January 31st after the holiday shopping season ends.
Final thoughts
Your company’s fiscal year determines important financial deadlines, such as when financial statements and tax returns are due. Having this important data under control will help you meet your recordkeeping and tax obligations.
If you believe that a change to your fiscal year could benefit your business — whether for tax preparation or to better fit your operations — we recommend that you consult an accountant or other tax professional for expert advice.
