What is meant by “fiscal year” in finance and why is it used?

When starting a business you can easily become bogged down in financial deadlines—from submitting returns to paying taxes on time. This is especially true when grappling with the various, often confusing, financial terms like “fiscal year,” “financial year,” and “tax year.”

This article will break down the fiscal year meaning, history, and practical applications of the key financial timelines in the UK, helping you stay on top of your obligations while you get your business going.

What does “fiscal year” mean?

Also known as a financial year, it refers to the 12-month period that businesses use to keep track of their financial records and activities. Your fiscal year does not need to match the calendar year (1 January to 31 December).

If you own a limited company, you will prepare your annual accounts based on your fiscal year. You will also have an “accounting period” for paying Corporation Tax, which normally covers the same period as the fiscal year.

The UK Government has its own fiscal year, which runs from 1 April to 31 March of the following year.

Tax year versus fiscal year in the UK

New company tax rates and rules typically take effect at the start of the UK government’s fiscal year. For example, a new Corporation Tax rate may begin on 1 April 2024.

Many limited companies choose a 31 March fiscal year-end to align with the UK government’s tax calendar. This simplifies their Corporation Tax calculations, as they can use a single set of rates for the entire year.

Importantly, the fiscal year differs from the UK government’s tax year, which runs from 6 April to 5 April of the following year.

The tax year spans 2 calendar years, which is why it is commonly referred to by both years. For instance, the tax year running from 6 April 2024 to 5 April 2025 is known as the 2024/2025 tax year.

History of fiscal year in the UK

The reason the UK fiscal year runs from April to March lies in its agricultural history.

In the mid-1700s, the British still used the Roman Julian Calendar (named after Julius Caesar), while the rest of Europe had already adopted the more accurate Gregorian Calendar in the 1500s.

As a result of the Julian calendar, the British celebrated the New Year on 25 March, which also marked the start of the financial year.

When the switch to the Gregorian Calendar was eventually made in 1752, it created an 11-day discrepancy between the old and new calendars. To ensure the government did not lose any tax revenue that year, the Treasury moved the start of the fiscal year to 5 April, making it a full 365 days since the previous tax year.

This system remained in place until 1800, when they needed to account for leap years. The start of the tax year was then shifted to 6 April.

Despite the calendar year shift to 1 January, the UK government decided to maintain the 6 April start date for the tax year. This timing better aligned with the agricultural cycle and the peak season for tax collection.

Can you choose your business fiscal year?

Unincorporated businesses

If you are a sole trader, you can choose any 12-month period as your fiscal year. But, when it comes to preparing Self Assessment tax returns, you must work out your income and expenditure using the tax year as your basis period—6 April to 5 April.

The basis period reform came into force on 6 April 2024 and affects all unincorporated businesses with fiscal years that do not match the tax basis period (including sole traders and partnerships).

The reform was introduced to help simplify reporting under Making Tax Digital for Income Tax Self Assessment, which will come into effect for certain sole traders from 6 April 2026.

So for most unincorporated businesses, it makes sense to match the fiscal year and tax basis period to simplify tax preparation. If you are affected by the basis period reforms, the best thing you can do is to seek advice from an accountant or other tax professional.

Limited companies

Unlike individuals, limited companies have more flexibility.

Companies House will automatically set your company’s fiscal year-end to 1 full year after the month you incorporated the company, but you can also change your company’s year-end.

Your company’s first accounting year will usually be a little longer than 12 months. That’s because your start date is the date the company was incorporated, and your end date is the “accounting reference date” that Companies House sets—the last day of the month the company was set up.

To give you an example, say your company was incorporated on 5 June, its accounting reference date would be 30 June the following year. So the first fiscal year would be 12 months and 26 days. But from the second year onwards, your company’s fiscal year would be 12 months long and run from 1 July to 30 June.

Your company must submit its annual accounts for the fiscal year to Companies House within 9 months of its fiscal year-end date. So if your company’s most recent fiscal year ended on 30 June 2024, for example, the annual accounts would be due by 31 March 2025.

There are industries that benefit from using different fiscal years. If your company operates a seasonal business, it may be beneficial to align your fiscal year with your revenue and expenses. For instance, retailers often see their busiest period around Christmas. As a result, many choose to end their fiscal year on 31 January, after the holiday shopping season has ended.

Final thoughts

Your business’s fiscal year dictates key financial deadlines, such as when annual accounts and tax returns are due. Getting to grips with these important dates can help you stay on top of your record keeping and tax obligations.

If you believe changing your fiscal year could benefit your business—whether for tax preparation or to better align with your operational cycles—we recommend consulting an accountant or other tax professional for expert guidance.