Differences between a fiscal and financial year

Written by eve roberts
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Differences between a fiscal and financial year
A financial year refers to an annual accounting period. (Ryan McVay/Photodisc/Getty Images)

In the UK, the term "financial year" can refer to any annual accounting period, and is often interchangeable with the terms "fiscal year" and "tax year." However, these are not always the same thing, and their precise meanings depend upon the context.

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The income tax year

The income tax year in the UK always begins on 6th April and ends on 5th April of the following year. The reason for this is that until the mid-eighteenth century, the new year, and the beginning of the tax year, was Lady Day on 25th March. The government introduced the Gregorian calendar in 1752, and the gap between the old and new calendars meant "losing" 11 days of potential revenue. As a consequence, the start of tax year became 6th April -- 11 days after Lady Day.

The financial year

All companies must organise their accounts according to a financial year, which accords with the dates specified in the company's annual report and accounts, and which go to Companies House. This financial year can run over any 12-month period as defined by the company, and does not have to begin in either January or April. Commonly, a company's financial year will end either on 31st March or 31st December. The UK government's financial year runs from 1st April to 31st March.

Corporation Tax and the Fiscal Year

Corporation Tax, paid by companies, is slightly different, with a tax year running from 1st April to 31st March. For Corporation Tax purposes, the tax year is the "Financial Year" or "Fiscal Year." Generally, the Corporation Tax year is the "Fiscal Year." Often a company's financial year matches the dates of the Corporation tax period, but this is not always the case.

The first financial year

Since a new company can start up at any time in the calendar year, it is also possible for a company to organise its first financial year over a period longer or shorter than a calendar year, from 6 months to a maximum span of 18 months. This means that its financial year can be set to coincide with the fiscal year which applies to Corporation tax. Subsequent financial years cover 12 month spans, unless the financial year end date is changes for any reason.

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