Accounting reference dates that improve your cash flow

Large companies often choose certain dates on which to end their annual accounts, e.g. 31 March. However, for smaller companies there's no reason to follow the trend. Is there an advantage to changing your company's accounting period?

How are companies taxed?

A company pays tax on its profits arising in a corporation tax (CT) accounting period. If there's a profit the CT payable is due nine months and one day following the end of a CT accounting period. A CT accounting period cannot be longer than twelve months. This rule prevents unfair deferral of tax by having a succession of long accounting periods.

A new date

You can change your company's financial reporting period (accounting reference date (ARD)) by shortening it as often as you wish or lengthening it, but this can only be done once every five years. Also, you aren't allowed to change the ARD to create an accounting period which is longer than 18 months.

Trap. If the accounting period is longer than twelve months, it must be divided into two CT periods - the first for twelve months and the second covering the remainder.

Making a change

While chopping and changing your accounting dates is possible it can be a hassle and create extra admin. That said, there can be clear advantages.

Tip. Changing a company's ARD can delay when profits are taxed and so defer when CT is payable.

Example. Acorn Ltd's profits for its first year of trade to 31 March 2026 are £100,000 but for the final nine months of trade it was only £10,000. If Acorn keeps its original accounting date it will have to pay tax on £100,000 by 1 January 2027. If Acorn shortens its first accounting period to end on 31 December 2025, its first CT bill will be based on profits arising during that period, i.e. £10,000 on 1 October 2026. By changing its ARD it delays the tax on the higher profits until 1 October 2027. That gives Acorn a useful cash-flow advantage.

Improved cash flow

The tables below show Acorn's CT payments with and without a change of ARD. We have assumed that profit for the second accounting period averages £15,000 per month.

There's a clear cash-flow advantage with the changed ARD.

Tip. The rule of thumb is that if profit is falling extend an accounting period and vice versa where profit is rising to bring in low tax liability sooner.

Tip. A company can change its ARD as often as it wants, but it will pay CT on the same amount of profits no matter how often it shortens or lengthens its accounting periods. The advantage is solely improved cash flow, unless there's a change in the CT rates.

Consider a change of your company's accounting period end date if its profits are increasing or decreasing significantly. Broadly, if the profit is falling extend the accounting period and shorten it where profit is rising.