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For various reasons, an unincorporated business, whether a sole trader or a partnership, may wish to change its accounting date.

A change of accounting date might offer the opportunity for profits to be taxed at a lower rate of tax. This would be particularly relevant when the top rate of income tax changes from one year to another or perhaps when the individual may have other sources of income which push him into a higher tax band for a particular year. For tax purposes it is important that the accounting period does not exceed 18 months.

Care does however need to be exercised over how the accounts are prepared for the transitional period to the new accounting date. In a recent case which came before the First Tier Tribunal, a change of accounting date was effected in an attempt  to shift  profits from 2010/11  (top tax rate 50%) to 2009/10 (top tax rate 45%). The attempt failed  because although the tax return effectively showed one 12 month accounting period and one eight month accounting period, the Tribunal would not accept as relevant accounts, the returned figures for those two periods, preferring instead separate accounts which had been prepared for the whole 20 month  period.

Whilst the decision in this case may be controversial, it emphasises the importance of seeking professional advice when considering a change of accounting date.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.