A company year, or tax year, is a 12-month period for accounting and tax purposes. Companies can choose their own year based on business needs, but must report on their operations and earnings to tax authorities. The start and end of the year can be changed with approval from tax authorities.
A company year, more commonly referred to as a tax year, is the 12 consecutive month period a company adopts for accounting and tax purposes. Selecting a corporate year is required by regulators and tax authorities. It also forms the basis of international accounting standards. Companies have the authority to set their own corporate year and can start or end the year based on business cycles or any other needs. Once a company adopts a corporate year, it can be changed if necessary, but not without some difficulty.
Companies are required to report on their operations. Some types of businesses, such as public companies, have public disclosure requirements mandated by law. Other types of businesses may not have to report their operations to the public, but they do have to report their earnings to local and national tax authorities. These reporting requirements are tied to 12 months of consecutive trades. Typically, these 12 months will correspond to a calendar year starting January 1st and ending December 31st, although some start with dates throughout the year.
Governments give businesses the authority to decide when their company year begins and ends. If the company does not make a specific selection, the option will automatically default to a calendar year. In the context of reporting requirements, agencies are interested in making sure businesses report for as long as they operate, not the way they cut time. As a result, companies can decide that the start and end of their company year according to business needs that do not correspond to the calendar year. This designation of a natural year is normally tied to the flow of a company’s business cycle.
Using a natural year as a company’s fiscal year means that the official start of the company’s fiscal and accounting year is a month other than January. For example, an education company that supplies schools may decide that it is more natural for them to set up the company’s accounting to match the cycle of the school year. So the company’s year will start on August 1st and end on July 31st, to match the company’s customers. This ensures that the company’s cash flow matches the way it receives payments from its major customers.
Choosing a corporate year is not set in stone. If there is a pressing business need, a company can change the tax year. Typically, a business must notify and receive approval from the tax authorities before making this change, as taxation is the most important factor that will be affected by the change. Most tax authorities won’t unreasonably withhold approval, however, as there are many legitimate business reasons to change a company’s accounting practices.
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