Financial Year End Explained

If you would like any assistance with changing your financial year end, please use the following link: https://www.swiftreg.co.za/Swiftreg/P... We at SwiftReg look forward to assisting you. We have a dedicated call center 021-595 44 33 (available during business hours) alternative please browser our website on https://www.swiftreg.co.za/index.aspx for more services. And now for the video script... :) In this video I will explain what a company’s financial year is and how it impacts you. It is important to understand that a financial year refers to companies while tax years refers to individuals and companies. These terms are often used interchangeably, so I will try to clarify. A financial year is defined as an accounting period for companies which runs for 12 consecutive months during which time the company is required to prepare its annual financial statements. The financial year end is the final day of this accounting period. This is when the accounts need to be closed off, stock takes completed and a host of other accounting tasks finalised so that the profit or loss for the company can be calculated which in turn will determine the amount of tax due to the Taxman. The Tax year is also a 12 month period but refers to an individual’s tax period which has static start and end dates. In South Africa these dates are from 1 March until the last day of February the following year. The tax year is named after the year in which it ends, for example, the tax year starting on the 1st March 2022 and ending on the 28 Feb 2023 will be referred to as the 2023 tax year. A company however can choose a different 12 month financial year starting when they wish and ending 12 months later. This can complicate issues, for example a company whose financial year ends at the of June will straddles 2 tax years. Since one of the functions of a financial year is to calculate and pay company tax, a company’s financial year is often referred to as the company’s tax year as that is the period for which the tax is calculated for the company. The flexibility for companies to select their own financial year is to accommodate business cycles which often run to seasonal high and lows such as farmers or tourism companies. This will allow them to prepare their financial statements during their quieter business period which will allow them more time to focus on completing the financials when the business is not so franticly busy. However, most companies choose to synchronise their financial year with the tax year for individuals as this simplifies their salary tax calculations. Every year during the budget speech, usually in the 2nd half of February, the Minister of finance will announce any increases or decreases in taxation rates; any new taxes and adjustments to the existing tax tables. The new tax tables for individuals become applicable at the beginning of the new tax year. By coinciding the companies financial year with these new tax tables your tax calculations in terms of salaries are simplified. If your financial year is different from the individuals tax year you would need to apply a portion of your tax calculations using the old tax tables up to end of Feb and for the remaining months of your financial year apply the new tax tables from 1 March. Just for interest’s sake I would like to share this table with you. It shows the financial years for countries across the world. The countries are displayed in descending alphabetical order on the left and the horizontal blue bars illustrate the 12 consecutive months of the financial year for each government. By scrolling down, you will notice that the bulk of the countries have chosen to coincide their government financial years with the calendar year to run from 1 Jan to 31 Dec As mentioned earlier, most companies in South Africa choose to start their financial year on 1st March which means that their financial year end will be on the last day of February. This is illustrated by the blue line in this graph. Lets assume that December arrives and for some reason you realise that you will not be in a position to draw up your financial statement in time. CIPC does allow you to change your financial yearend only once during your current financial year and only up to a maximum of 15 months from the start date of the current financial year. This would effectively mean that you could only extend the financial year to the 31 May in the following year as illustrated by the green line, and just in case you were wondering, NO you can’t backdate the financial year either. I hope you have found this interesting so as always remember WE ARE HERE TO HELP