Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
If you run a business and talk to your accountant, you may hear the term fiscal year (FY). It’s simply a period of one year that a company uses for financial accounting, budgeting and measuring financial performance.
Companies operate an FY, also known as a financial year, which may be different to a tax year. For example, while the government-defined tax year in the UK runs from 6 Apr to 5 April the following year, an FY may be different. Many companies run an accounting period in alignment with the
calendar year from 1 January to 31 December
Others choose a non-calendar year. For example, the year-end for colleges might coincide with the end of the school year i.e. 31 July. Some companies base their fiscal period on the date they were incorporated. Others base it on their revenue cycle; tech companies, for example, often report strong sales in the first six months of a year, so 30 June is common as an end-date.
Why is a fiscal year important?
Having a defined FY allows companies and investors to measure performance over the period of one year. It also allows them to compare revenue and costs with previous years, and thus make business decisions.
It may be further broken down into fiscal quarters or months to allow for more detailed comparisons; for example, when an accounting audit is undertaken.
HMRC requirements for fiscal years
The accounting period you choose can’t be longer than 12 months. When you set your calendar year-end affects your deadlines for paying corporation tax and filing a company tax return.
Once you register for corporation tax with HMRC, you’ll be sent a letter confirming your accounting period.
If your accounting year runs for more than 12 months, you are required to
file two tax returns to cover the period.
Why companies use different fiscal years
The main reason companies opt for different year-ends depends on when their major income period falls. Many businesses make most of their income during the holiday season, so it makes sense to limit the effects of seasonal fluctuations by finishing when income is at its highest. Plus, it’s not easy to file year-end accounts during such a busy period. Other businesses make most of their money in the summer, so finishing on 1 October is more logical.
A company may change its fiscal arrangements either because it paused trading and resumed at a later date, because it wants to align its FY with other companies within the group or because its FY coincides with a quieter trading time and helps ease staff workloads.
Frequently asked questions about fiscal years
When does a fiscal year start?
Most companies run their fiscal period from 1 January to 31 December, but this isn’t always the case. As long as it is a 12-month period, they can run their FY over any chosen period.
When does a fiscal year end?
More often than not, FYs finish on 31 December, but whatever 12-month period a company chooses, the last day of an FY is always the last day of a month. An FY can be shorter than 12 months but cannot be longer.
How do I know my fiscal year?
It is a 12-month period that you choose for your company’s accounting. This can be the same as the calendar year (1 January to 31 December) or another period. You can allocate your accounting period based on the seasonality of your business – you might choose to have your FY end in the quarter after major business activity has finished, making it easier to see how your business has done during the year.