The financial year: dates and deadlines CEOs must know
When Shakespeare penned Juliet’s infamous line from Romeo and Juliet – “What’s in a name? That which we call a rose / By any other name would smell as sweet” – we can be pretty sure he wasn’t thinking about tax returns.
Juliet was in love with Romeo, a Montague, and therefore strictly verboten for her, as a Capulet, to associate with. But for Juliet, he’d be the same young man she’d fallen in love with, whatever he was called.
That might seem a strange way to begin a discussion of the financial year, but we can ask a similar question: “What’s in a name?” A financial year isn’t necessarily the same as a calendar year (although it can be in some countries). It’s the same length but usually starts and ends at a different 12-month interval.
The most succinct definition of the financial year is “a 12-month interval used by governments and companies for financial reporting and budgeting.” In practical terms, it’s the period used for accounting and preparing financial statements.
Using the UK as an example, let’s take a closer look at the key dates and accounting deadlines in the financial year – the dates and deadlines every CEO and small business owner needs to know.
Key dates and deadlines of the financial year
A little history first about the dates of the financial year itself. In the UK, the financial year begins on the 6th of April and ends on the 5th of April of the following year (in the US, the equivalent period is the 1st of October to the 30th of September). The reason the financial year begins in April in the UK (and in several other countries) goes back to 1582, when Pope Gregory XIII altered the “Julian” calendar of Julius Caesar, which had been used for centuries, to the new “Gregorian” calendar.
The reason? Over the 500 years, the Julian calendar had been used, scholars had detected a growing discrepancy: it was “shorter” than the solar calendar by 11½ minutes a year, which over five centuries had mounted up to 10 entire days. The Gregorian calendar corrected that, shortening the length of the calendar year from 365.25 days to 365.2425. That amounted to a “cutback” of 10 minutes and 48 seconds per annum, re-aligning the calendar with the solar calendar.
When the Gregorian calendar was introduced in the UK in 1752, another adjustment had to be made: the financial year had coincided with the calendar year, which in those days began on the (old) New Year’s Day (25th March). By 1800, the Treasury had decided that the new pattern of leap years in the Gregorian calendar necessitated a financial year start of the 5th of April and an end of the 4th of April to prevent loss of revenue.
Unlike businesses in the 18th century, 21st-century companies benefit from considerable advances in technology that were unimaginable back then, including accounting software. These 21st-century software innovations can automate processes that would otherwise consume vast amounts of human time in manual data entry. Examples of what can now be automated include invoicing and billing customers, managing payroll, tracking income and expenses, generating quarterly business performance reports and balance sheets, and, above all, keeping all tax affairs accurately and safely in order.
Let’s move on to those key dates and deadlines.
- VAT deadlines: Standard VAT deadlines vary according to a firm’s VAT return period (quarterly, monthly or annual). Quarterly VAT returns should be submitted one month plus seven days after the accounting period ends – i.e., on the 7th day of the following month. Annual returns become due in one month plus seven days after March or June (i.e., the 7th of May or August).
- New ‘Making Tax Digital’ VAT requirements: HMRC advised British businesses to ensure they were ready for ‘Making Tax Digital for VAT from 1st April 2022, when it became obligatory for all VAT-registered companies to submit a digital return. A rule of thumb is that if a firm’s turnover exceeds £85,000 a year, it will almost certainly need to register for VAT. HMRC aims to become amongst the most digitally advanced tax administrations in the world, and compliance with the scheme necessitates businesses ensuring that they have compatible “bridging software” to transmit spreadsheet data to the Revenue’s systems. Alternatively, subscription-based automating accounting software will do the trick.
- Payroll deadlines: For all UK companies with pay-rolled employees, employers must withhold the correct amount of income tax and National Insurance Contributions (NICs) from their pay, submitting them to HMRC by post by the 19th day of each month or by the 22nd day if submitted online.
- Employers wishing to register for payroll benefits must prepare an updated payroll record for each employee by the 6th of April, selecting the correct tax code for the new tax year and entering it accurately on the firm’s payroll software.
- Full Payment Summaries and Employer Payment Summaries must be submitted in April (in 2022, it was the 19th) when tax and NICs for the financial year must also be paid.
P60s must be given to each employee after the financial year (5th April), with a deadline of 31st May.
That’s a lot to keep track of, so suddenly, automating software looks like an attractive option!