When Should Your Financial Year End? A Guide for Limited Companies and Sole Traders

Choosing your financial year end might not sound like the most exciting part of running a business but it can have a real impact on how you manage your cash flow, plan for tax, and stay on top of deadlines.

Whether you're a limited company or a sole trader, here's what you need to know about how financial year ends work and how to choose one that works for you.

For Limited Companies

The default position

When you set up a limited company with Companies House, it’s automatically given a financial year end (known as the accounting reference date). This will be the last day of the month in which the company was incorporated, one year later.

So if your company was formed on 7 April 2025, your year end will be 30 April 2026.

This date will repeat every year, unless you change it.

Can you change your year end?

Yes, you can.

You can:

• Shorten your financial year as often as you like

• Extend your financial year by up to 18 months, but only once every five years

Changes must be reported to Companies House before your filing deadline and may also affect your Corporation Tax deadlines, so plan ahead.

Why might you change it?

Here are some common reasons business owners choose a different year end:

• To align with quieter periods – Making your year end fall in a quieter season gives you time to get your records in order without disruption.

• To match the tax year – A 31 March or 5 April year end makes it easier to align your company’s profits with your personal tax return, especially if you take dividends.

• To delay a tax bill – If your company has just made a large profit, a well-timed year end change could delay when the tax is due.

• To align with other businesses – If you run or are involved in multiple companies, it’s helpful to sync year ends to streamline admin.

For Sole Traders

The standard position

Sole traders don’t have a "financial year end" in quite the same way companies do. Instead, your accounts are used to prepare your annual Self Assessment tax return, and your profits are taxed in the tax year they fall into.

The UK tax year runs from 6 April to 5 April, and most sole traders use this period for their accounts.

But you're not obliged to. You can choose a different accounting period - at least, you used to be able to.

Important change: Basis Period Reform

From April 2024, all sole traders and partnerships are taxed on profits that fall within the tax year (regardless of what your accounting period is). This change, known as Basis Period Reform, effectively means:

From 2024/25 onwards, everyone is taxed on profits earned during 6 April to 5 April.

If you previously used a different year end (e.g. 31 December or 30 June), you may now need to apportion profits across two sets of accounts to match the tax year.

What’s the best accounting date for sole traders?

Now that the tax year basis is compulsory, most sole traders will find it simplest to use 31 March or 5 April as their year end going forward. This avoids the hassle of calculating split-year profits and keeps things tidy.

Which year end is most beneficial?

There’s no universal "best" answer - it depends on your business’s:

• Cash flow cycles

• Busy and quiet periods

• Investment and tax planning needs

• Personal income and spending plans

But here are some general tips:

Final Thoughts

While your financial year end might seem like just another admin point, it's actually a useful lever you can pull to manage workload, smooth out tax liabilities, and plan more effectively.

If you’re unsure whether your current year end is working in your favour, or if changes like Basis Period Reform have made things more complicated than they need to be, it’s worth having a quick chat with your accountant.

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