If you are looking for the answers to your queries about what is a fiscal year, this is your guide. In finance and accounting, the fiscal year is a critical concept that refers to a 12-month period that organisations use to track and report on their financial performance. The fiscal year is not the same as the calendar year and can start on any date that suits the organisation’s needs and preferences.
The fiscal year is essential for maintaining accurate financial records, making informed decisions, and providing shareholders and other stakeholders with a clear and accurate picture of the organisation’s financial health. In this discussion, we will explore the importance of the financial year, how it is defined, and why it is essential for organisations to choose a fiscal year that aligns with their business cycle and financial reporting needs.
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What is a Fiscal Year in Finance?
In accounting, the fiscal year can start on any date the company chooses, and it does not necessarily have to coincide with the calendar year. The fiscal year is a period that the company uses to organise its finances, track its results, and make financial decisions.
The fiscal year begins on the first day of the fiscal year (also known as the fiscal start date) and ends on the last day of the fiscal year (also known as the fiscal end date). During the fiscal year, the company records its transactions, accounts for its assets, liabilities, and revenues, and prepares financial statements based on the information it has collected.
The fiscal year is an important concept in accounting because it allows companies to follow a consistent reporting framework that provides a clear snapshot of their financial health regularly. In short, the fiscal year is a crucial accounting concept that provides companies with 12 months to track their financial performance and make informed financial decisions.
How Does the Fiscal Year Work for Tax?
In the UK, the fiscal year runs from 6 April to the following 5 April and is important for calculating your taxes, including income tax, capital gains tax, value-added tax (VAT) and other taxes.
During each tax year, you earn a certain amount of income and may incur certain expenses. You must keep records of these transactions, including receipts, invoices, and bank statements. At the end of the tax year, you must complete a tax return that declares your income and expenses. This includes a calculation of the tax you owe based on your earnings minus your allowable expenses. You can also make contributions to certain tax-efficient savings and investment schemes, such as individual retirement accounts, which may reduce your tax bill.
The tax year is divided into three parts:
1. The first third of the tax year, before 5 April, is known as the “previous tax year”. Any tax claims you make during this period must be made using the previous tax year’s tax return and are subject to the rules and rates for that tax year.
2. The middle third of the tax year, from 6 April to 5 July, is the “current tax year”. It is during this period that you usually make your tax payments and claims using the current tax year’s tax return.
3. The final third of the tax year, from 6 July to the following 5 April, is the “next tax year”. This is when you usually make your tax payments and claims using the next tax year’s tax return.
If you are not sure about your tax obligations or how to complete a return, it is recommended that you seek the advice of an accountant or tax consultant.
Is it the Same as the Financial Year?
The fiscal year (also known as the tax year) and the financial year are not the same thing. While they both refer to 12 months, they have different start and end dates and are used for different purposes.
This means that the current fiscal year in the UK runs from 6 April 2023 to 5 April 2024. The fiscal year is used for tax purposes, including the calculation of income tax, VAT, and other taxes.
The financial year, on the other hand, is a 12-month accounting period used by businesses to calculate their profits and losses and to prepare financial statements. The financial year may start on any date during the year, depending on the company’s preference.
While the fiscal year and financial year have different start and end dates and are used for different purposes, they can overlap. For example, if a company starts its financial year on 1 January and ends it on 31 December, that means its financial year and fiscal year are aligned. However, in most cases, companies start their financial year on a date that is different from their fiscal year, so they may have a 12-month accounting period that overlaps with two fiscal years.
In summary, the fiscal year is used for tax purposes, while the financial year is used for accounting purposes. Although they may overlap, they have different start and end dates and are used for different purposes.
The Bottom Line
In conclusion to what is a fiscal year, the fiscal year is a crucial accounting concept that refers to a 12-month period that companies use to track their financial performance and make informed financial decisions. The fiscal year is an important concept that can help companies compare their performance over time and identify trends and patterns in their financial performance. In general, a fiscal year is an essential tool for tracking and analysing financial performance and making informed decisions about budgeting, forecasting, and allocation of resources.
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Disclaimer: The information about a fiscal year is provided in this article including text and graphics. It does not intend to disregard any of the professional advice.