For a self-employed person, is there any difference in the choice of year end for tax purposes?

If you are self-employed you will have chosen a date for your year end and your annual accounts are prepared up to this date. That year is then used as the basis for your taxes for the tax year ending on the following 5th April. By the 31st January of the following year all taxes and National Insurance should have been paid.

In order to improve your cash flow you could choose a year end of 6th April in order to increase the time between this date and the end of the tax year to 364 days. However thought should be given before changing the year end as this can give rise to the tax treatment for business end and you may find you have two accounting periods ending in the tax year both of which are taxed.

If I am owner/manager of a Limited Company what effect on tax has the choice of year end?

Corporation Tax is due 9 months and 1 day after the end of your accounting period. So from the company's point of view the choice of year end has no influence on the delay for payment of corporation tax.

However there are effects on Income Tax where a dividend or a bonus is paid at the end of the accounting period. If a company's year end is 6th April and a bonus is paid on that date any income tax due on the bonus will be due 364 days later than if the bonus were paid a day earlier.

If a dividend is paid instead of a bonus, as in the case above, any income tax on the dividend will be due 364 days later than if the bonus were paid a day earlier.

If the Company's year end is 5th April rather than 6th April then it cannot benefit from the possibility of paying a bonus on 6th April benefitting from the reduction in Corporation Tax from the bonus and allowing the income tax on the bonus to be assessed one year later. However in the case of a dividend being paid 6th April the Corporation tax would not be affected.

From the point of view of the taxman payment of a dividend or bonus is made when the money is unreservedly placed at the disposal of the directors/shareholders as part of their current accounts with the company. So payment is made when the right to draw the money exists when the entries are made in the company's books.

Interim dividends: The directors may pay one if it is justified by profits available for distribution. It often happens that the company does not have cash for paying a dividend but provided the dividend is authorised by the directors and the distribution is unreservedly put at their disposal. The final dividend is declared by the company in general meeting.