Why could an accounting year be different from a tax year?
Some self-employed people have accounting years with a different year-end.
There are several reasons for this - it might be because they started their business at a certain time of year and just kept with that, or an adviser suggested a different date to help with admin.
It could also be due to seasonality purposes, for example, if you're a farmer who harvests and sells crops around March/April each year, you might want a different accounting year-end, so that your profit is fairly consistent each year.
Other reasons could be to purely fall in line with a parallel business that already has an accounting period.
Why does an accounting year matter?
Tax is currently paid on what you earn during your accounting year - with an adjustment at the start and end of the business.
Historically you'll be taxed on profits earned in the accounting year that ends in a tax year. So a trader making profits from 1 January 2021 to 31 December 2021 pays tax on this as part of their 2021/22 tax return. What they earn from 1 January 2022 to 5 April 2022 may be received in the 2021/22 tax year, but won't be taxed until the following year.
Overlap adjustments are made at the start and end of a business to keep things in line. You may see the period that you need to pay tax on referred to as a "basis period".
HMRC now wants to change this, removing the mismatch between the basis period (generally your accounting year) and the tax year.
