Period of account
A period of account is the period for which a company prepares its accounts.
Normally, a period of account is for 12 months, however it may be longer or shorter than this.
This will normally occur when the company starts to trade, ceases to trade or changes its accounting date.
The maximum length of a period of account is 18 months.
Accounting period / Chargeable accounting period
Normally, a company’s chargeable accounting period is the same as it’s period of account.
The difference between both is that a chargeable accounting period must be equal to or less than 12 months.
However, a period of account can exceed 12 months.
In the case where a company’s period of account exceeds 12 months, then 2 chargeable accounting periods will be created.
The first one for the first 12 months and the second one for the remaining months in the period of account.
It is the chargeable accounting period for which a corporation tax computation is prepared.
Therefore, if a period of account is split into 2 chargeable accounting periods because it is longer than 12 months, then 2 corporation tax computations will result.
When does a chargeable accounting period start or end?
A CAP will normally start immediately after the end of a previous CAP.
A CAP will also start when a company commences to trade, or when its profits become liable to corporation tax.
A CAP will normally finish 12 months after the beginning of the period or at the end of a company’s period of account.
A CAP will also finish when a company ceases to trade, or when its profits otherwise cease being liable to corporation tax.
Financial Year (FY)
Financial years run from 01 April – 31 March.
F.Y. 18 = 01/04/2018 - 31/03/2019
Financial years determine which corporation tax rates to use.
There is a single rate of corporation tax of 19% regardless of the size of the company.
For the ATX - UK examination, students will be required to calculate a hybrid rate of corporation tax when a chargeable accounting period spans an earlier financial year.
A company prepares accounts for the 15 month period from 01/01/2017 - 31/03/2018.
What is the period of account?
What are the chargeable accounting periods?
How many corporation tax computations will be prepared?
Period of account:
01/01/2017 – 31/03/2018
Chargeable accounting periods:
01/01/2017-31/12/2017 (First 12 months)
01/01/2018-31/03/2018 (Last 3 months)
2 corporation tax computations will be prepared, one for each chargeable accounting period.
Note: in the case of the first chargeable accounting period, 3 months fall in FY16 and 9 months fall in FY17 and so a hybrid rate of corporation tax will need to be calculated.
(3/12*20%)+(9/12*19%) = 19.25%
Smarty Ltd. became incorporated on 26/05/2018.
It commenced trading on 01/11/2018.
It prepared its accounts to 31/03/2019.
When does Smarty Ltd,’s accounting period start?
It starts on 01/11/2018, this is because the company commenced trading on this date.
Note normally the accounting period starts after the previous one has finished, however as Smarty Ltd. does not have a previous accounting period, their accounting period starts when they commenced to trade.