Everything about Fiscal Year totally explained
A
fiscal year (or
financial year, or sometimes
budget year) is a period used for calculating annual ("yearly")
financial statements in
businesses and other organizations. In many jurisdictions, regulatory
laws regarding
accounting and
taxation require such reports once per twelve months, but don't require that the period reported on constitutes a
calendar year (for example January through December). Fiscal years vary between businesses and countries.
In the United Kingdom, the term fiscal year is sometimes used to refer to the
tax year, the year used by statute for tax reporting by individuals, and isn't commonly used for accounting years used by companies. The equivalent of fiscal year applied to companies is the
accounting reference period (required under the
Companies Acts), which usually forms the basis of the
accounting period used for tax purposes.
Disparity with the calendar year
Often the fiscal or tax year is specifically established not to match the calendar year (also called natural year) so that accounting year-end work doesn't coincide with periods of high activity, such as the Christmas shopping rush for retailers, or with
holiday periods when employees may prefer to take vacation.
A popular use of a non-calendar year as the fiscal year involves retailers. In many countries, at the end of December, levels of
inventory,
receivables and
payables will be higher than at other month ends and consequently more complex and time-consuming to measure accurately. Therefore, retailers commonly use a month other than December to end their fiscal year. January may be chosen as the last month of the fiscal year because activity levels are likely to be closer to normal by the end of January.
In addition, many companies find that it's convenient for purposes of comparison and for accurate stock taking to always end their fiscal year on the same day of the week, where local legislation permits. Thus some fiscal years will have 52 weeks and others 53. Major corporations that adopt this approach include
Cisco Systems and
Tesco.
In the
United Kingdom, a number of major corporations that were once government owned, such as
BT Group and the
National Grid, continue to use the government's financial year, which ends on the last day of March, as they've found no reason to change since
privatisation.
Nevertheless, for about 65% of publicly traded companies in the
United States and for a majority of large corporations in the UK and elsewhere, except in
Australia,
New Zealand and
Japan, the fiscal year and calendar year are identical.
Many
universities have a fiscal year which ends during the summer, both to align the fiscal year with the
school year, and because the school is normally less busy during the summer months. Examples include
Harvard University and most English universities.
Operation in various countries
Such fiscal years are typically numbered using a calendar year and quarter thereof. A
fiscal quarter is 3 months (1/4 of a year). For example, the
United States government fiscal year for
2008 ("FY08", sometimes written "FY07–08") is as follows:
The U.S. government's fiscal year begins on
October 1 of the previous calendar year and ends on
September 30 of the year with which it's numbered. Prior to
1976, the fiscal year began on
July 1 and ended on
June 30. The
Congressional Budget and Impoundment Control Act of 1974 stipulated the change to allow Congress more time to arrive at a budget each year, and provided for what is known as the "transitional quarter" from
July 1,
1976 to
September 30,
1976. As stated above, the tax year for a business is governed by the fiscal year it chooses.
The
Australian government's fiscal year begins on
July 1 and concludes on
June 30 of the following year. This applies for personal income tax and the federal budget, and most companies are required to use it as their own. In
Canada, the
United Kingdom,
New Zealand,
India,
Hong Kong and
Japan, the government's
financial year runs from
April 1 to
March 31.
United Kingdom corporation tax is charged by reference to the government's financial year, but companies can adopt any year as their accounting year: if there's a change in tax rate, the taxable profit is apportioned to financial years on a time basis. Japan's
income tax year runs from January 1 to December 31, but corporation tax is charged by their own one year period.
In the UK, the
tax year (which governs liability to personal income tax and
capital gains tax) runs from
April 6 to
April 5. This reflects the old
ecclesiastical calendar, with
New Year falling on
March 25 (
Lady Day), the difference being accounted for by the eleven days "missed out" when
Great Britain converted from the
Julian Calendar to the
Gregorian Calendar in
1752 (the British tax authorities, and landlords were unwilling to lose 11 days of tax and rent revenue, so under provision 6 (
Times of Payment of Rents, Annuities, &c.) of the
Calendar (New Style) Act 1750, the 1752–3 tax year was extended by 11 days). From 1753 until 1799, the tax year in Great Britain began on
5 April, which was the "
old style" new year of
25 March. A 12th skipped Julian leap day in 1800 changed its start to
6 April. It wasn't changed when a 13th Julian leap day was skipped in 1900, so the tax year in the
United Kingdom is still
6 April.
Ireland also used the year ending April 5 until 2001 when it was changed, at the request of Finance Minister Charlie McCreevy, to match the calendar year (the 2001 tax year was nine months, from April to December).
In some jurisdictions, particularly those that permit
tax consolidation, companies that are part of a
group of businesses must use nearly the same fiscal year (differences of up to three months are permitted in some jurisdictions, such as the U.S. and
Japan), with consolidating entries to adjust for transactions between units with different fiscal years, so the same resources won't be counted more than once or not at all.
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