What is"Accounting Reference Date"?
For a layman, the term accounting reference date means the end of a financial year for a limited or a limited liability company. In short form referred to as 'ARD' also, it is the date an organisation must make its annual financial accounts up to.
Normally for any organisation, the accounting reference date falls on the anniversary of the last calendar day of the month it got itself registered with the Companies House. Say for instance, any company incorporated on 7th July 2015 would have an accounting reference date of 31st July. Subsequently, the company's accounting reference date will fall on 31st July 2016. From here on, it will be on the same date in the years following, till the time company chooses to change the date. The changes will inevitably go on to affect the span of the company's accounting year.
One can change the company's accounting reference date after the company has been incorporated, in case there is either a requirement for extending or shortening the 12-month accounting year. However, change in accounting reference date can be only prior to the deadline for delivering annual accounts for the present or the immediate previous financial year. But then one also needs to know accounting reference date can't be changed in case of overdue accounts.
Procedure for changing an Accounting Reference Date
There are always opportunities to change a company's accounting reference date subsequent to formation of a company. But in the case if one plans to prolong or reduce their 12 month financial year. However, there is always a freedom to do this before the deadline for submission of annual accounts for a present or previous financial year; subject to a condition the annual accounts are not late.
Changes one wishes to make to a company's financial year must be done by the 9th month period after the end of financial year for the company. On the alteration of the financial year, the filing time limit for supplying accounts will change to 9 months moving forward from the accounting reference date.
Purpose of an Accounting Reference Date
Every accounting reference date signifies the date on which a company's financial year concludes. With each financial year coming to an end, the need would be to:
As the case is annual accounts are required to report business activities during that financial year, up to and it should also include accounting reference date. Here the accounts would need to be referenced for determining the profit or loss a business has made, whilst knowing how much tax is to be paid to the HMRC.
Going ahead and changing the ARD
Any change done online is registered in within a couple of hours in the public records. But then to alter the financial year end and also to convey the same to the Companies House, the following things would need to be delivered via online or postal application. Those being:
Once done, the same data can be submitted to the Companies house via form AA01: Change Your Company Accounting Reference Date. The same form can be downloaded and sent to Companies House or alternatively one can complete it via WebFiling by going online.
Reasons for changing Accounting Reference Date
Companies might want to change their accounting reference dates due to many reasons. Those could be:
Extending the Financial Year
The financial year of a company can be extended by up to 18 months - or beyond if the business is an administrative entity. But this can be done only once in every 5 years. Organisations can extend a financial year more than once every 5 years only in the following cases:
Herein, a company has the liberty to reduce its financial year as often as the need be and by as many days it wants. In case of an accounting reference date being changed, the company's financial year will finish on that date year. Owing to this the annual financial accounts will report all financial activity for the time beginning from the inception date of the company (or day after previous year's accounting reference date) till the new accounting reference date.
Difference between Financial Year and Accounting Period for Corporation Tax
Accounting period for corporation tax is decided by HMRC for preparation of a Company Tax Return and paying of corporation tax. This very different from financial year of the company starting on the date a company is incorporated. Whereas, accounting period for corporation tax does not start until a company starts trading or in other words active. This could also be the day a company is incorporated if the trading begins straightaway. So in this scenario, the financial year and accounting period both will commence on same day. But in case the business doesn't become active immediately, the corporation tax accounting period will begin on a later date.
Once a company becomes active, one must inform HMRC within 3 months. This can be done by registering the company online for corporation tax. After this, HMRC would approve start date of corporation tax for accounting period. Once done it would finish the accounting reference date exactly like in the case of annual accounts.