Accounting Period for Small Business
Hello everyone,
I’m looking for some quick advice regarding my small limited company.
I incorporated my company in mid-January 2024, but I didn’t receive any income until March 2024. Since my accounts aren’t due for a while, I’d like some clarification on the accounting period.
Is my accounting period considered to end in December 2024, or January 2025, given that I incorporated in mid-January 2024? I believe the accounting period can’t exceed 12 months.
Also, will I be taxed on the amount in my account at the end of this first accounting year? Will any remaining funds be taxed in the upcoming year?
Additionally, I made some business-related purchases using my personal account during this period, but I haven’t invoiced my company for them yet. Can I backdate these expenses and deduct them from profits in the previous financial year, or is it too late for that?
Thank you for your assistance!
3 Comments
Hi there,
Congratulations on your new limited company! Here’s some guidance regarding your accounting period and related queries:
Accounting Period: Since your company was incorporated in mid-January 2024 and your first income was received in March 2024, your first accounting period will indeed end on December 31, 2024. For a new company, the first accounting period can last up to 18 months, but it typically conforms to a 12-month accounting year and ends on the last day of the month closest to your incorporation date or the end of the calendar year.
Taxation on Income: You will be taxed on the profits your company makes during the entire accounting period (from January 2024 to December 2024). This means that any income earned during this period will need to be declared, while expenses allowable for tax deductions can also be taken into account.
Personal Purchases: You can reimburse yourself for the legitimate business expenses you incurred from your personal account, even if you haven’t invoiced the company yet. Just keep records of those purchases. You can claim these expenses back as deductions against your company’s profits; they must be properly documented to support your claim. However, it’s advisable to do this as soon as possible, as it helps maintain clear records and ensures compliance.
Always consider consulting with an accountant or a tax professional to ensure you’re complying with all regulations and making the most of your deductions and allowances.
Hope this helps, and good luck with your business!
Best,
[Your Name]
Hi there!
Congratulations on your new business venture! It’s exciting to see your company take shape. Regarding your questions about the accounting period, in the UK, the accounting period for a new company typically begins on the date of incorporation and can last for up to 12 months. Since you incorporated in mid-January 2024, your first accounting period would generally end in January 2025 unless you choose to align it with the end of the calendar year (December 2024).
However, if you choose December 2024 as your accounting year-end, you’ll need to file a notice with HMRC according to their guidelines, as you have the option to set an accounting year-end that differs from your incorporation date.
As for taxation, you will only be taxed on your company’s profits (not simply the amount in your account). If you had no income before your first accounting period closes, your tax liability should reflect that. Any funds remaining in your account at the end of the year won’t be taxed unless they represent profits.
Regarding your business purchases made from your personal account, you can indeed claim these expenses, even if you didn’t invoice your company yet. Generally, you can backdate these expenses to within the current accounting period as long as the purchases were for the business and incurred within the financial year. Just remember to have thorough records for each transaction and ensure they are clearly business-related.
It might also be beneficial to keep detailed expense logs and maintain a separation between personal and business accounts
Great questions! When establishing your first accounting period for your new company, it’s common to set it as a 12-month period starting from your incorporation date—in your case, mid-January 2024. This means your first accounting year would typically run from mid-January 2024 to mid-January 2025, though many small businesses choose to align their year-end with calendar months for simplicity.
Regarding taxation, you’ll be taxed on the company’s profits at the end of each accounting period, not on the total funds sitting in your account. Profits are calculated based on income earned minus allowable expenses, including legitimate business-related purchases—even those made via personal accounts—if they haven’t been reimbursed or recorded yet.
For expenses paid personally, it’s good practice to backdate and capture those as business expenses in your accounts before the relevant period ends, provided you have valid receipts or proof of purchase. However, it’s best to do this project as soon as possible, as late adjustments could be scrutinized during tax filing.
Overall, clear record-keeping, proper invoice management, and aligning your accounting period with your business activities will help streamline your tax obligations. Consulting with an accountant can also ensure you’re optimizing deductions and complying with HMRC requirements. Good luck with your new venture!