What Is an Accounting Period? UK Definition
The window your accounts cover. For most sole traders it now lines up neatly with the tax year - but it was not always that simple.
- What Is an Accounting Period? UK Definition
- An accounting period is the span of time that a set of business accounts covers - typically twelve months - over which you add up income and expenses to arrive at the profit reported to HMRC.
Ask three sole traders when their "year" ends and you may get three different answers. The accounting period is one of those quiet pieces of plumbing that rarely gets explained, yet it decides which slice of your profit lands in which tax year - and, since a major 2024 reform, the sensible default has changed for almost everyone working for themselves.
- An accounting period is the span of time a set of business accounts covers, usually twelve months.
- It is not the same thing as the tax year, which is fixed at 6 April to 5 April.
- Since 2024/25, sole traders are taxed on profits arising in the tax year, so most align their accounts to 5 April or 31 March.
- First-year and date-change periods can be shorter or longer than twelve months.
- From April 2026, MTD for Income Tax requires quarterly digital updates within your accounting period.
What an Accounting Period Actually Is
Your business does not measure profit on a rolling daily basis; it measures it over a defined block of time. That block is the accounting period. At its end you total everything you earned and everything you legitimately spent, and the difference is the profit (or loss) you report. Most businesses use a twelve-month period because it captures a full cycle of trade, including any seasonal peaks and troughs.
- Accounting date
- The last day of an accounting period - the date your accounts are 'made up to'. Common choices are 5 April, 31 March or 31 December.
The accounting date matters because it is the anchor for everything that follows: the profit figure, the expenses you can claim, and the closing position you carry forward. Choose 5 April and your accounts map cleanly onto the tax year. Choose anything else and you create an apportionment job at year end.
Why the Tax Year and the Accounting Period Are Different Things
The tax year is fixed by statute: 6 April to 5 April. You cannot move it. The accounting period, by contrast, is yours to set. A baker might run accounts to 31 December because it suits stock-taking; a freelancer might run to 5 April because it is simplest.
The two only cause friction when they do not line up. Historically, sole traders were taxed on the accounting period ending in the tax year (the "current year basis"), which produced overlap profits and a confusing first few years of trading. The 2024 basis period reform swept that away.
Basis Period Reform: Why 5 April Now Wins
From 2024/25 onwards, the basis period for sole traders and partnerships is the tax year itself. You are taxed on the profit that arises between 6 April and 5 April, full stop. If your accounts end on any other date, you must time-apportion two sets of accounts to fill the tax year - extra work, and sometimes estimates that have to be corrected later.
Because of this, HMRC and most accountants now recommend a 5 April (or 31 March) accounting date for the self-employed. It removes apportionment entirely.
A Worked Example: Aligned vs Misaligned (2025/26)
Priya, a freelance illustrator, draws her accounts up to 5 April 2026. Her accounting period is simply 6 April 2025 to 5 April 2026, and her £38,000 profit is taxed in full in 2025/26. No apportionment, one clean figure.
Now compare Sam, who kept an old 30 June accounting date. For 2025/26 he must blend:
| Period | Days in 2025/26 | Profit | Apportioned to 2025/26 |
|---|---|---|---|
| Year to 30 Jun 2025 | 86 of 365 | £30,000 | £7,068 |
| Year to 30 Jun 2026 | 279 of 365 | £42,000 | £32,104 |
| Taxable profit 2025/26 | £39,172 |
Sam reaches a similar figure, but only after splitting two years of accounts by days - and the second figure may be an estimate he later amends. Priya's single 5 April period avoids all of it. Plan your reporting windows with the quarterly planner.
Accounting Periods Under Making Tax Digital
From April 2026, sole traders and landlords with qualifying income over £50,000 enter Making Tax Digital for Income Tax. You will keep digital records and send a summary of income and expenses to HMRC every quarter, with quarters running 6 April–5 July, 6 July–5 October, and so on. Those quarters sit inside a 6 April to 5 April accounting period, which is yet another reason aligning your accounting date to the tax year is now the path of least resistance.
The accounting period decides which profit belongs to which year. Since 2024, the simplest answer for the self-employed is to make it match the tax year exactly.
Related terms
- Tax year - the fixed 6 April to 5 April period your profits are taxed in.
- Quarterly planner - map your accounting period onto MTD quarters.
- Basis period - the rules deciding which profit is taxed in which year.
People also ask
Frequently asked questions
- What is an accounting period for a sole trader?
- It is the period your business accounts cover, normally twelve months, over which you total income and expenses to work out profit. Since the 2024/25 tax year, sole traders are taxed on the profit arising in the tax year itself (6 April to 5 April), so most now draw up their accounts to 5 April (or 31 March, which HMRC treats as equivalent) to keep things simple.
- Is an accounting period the same as the tax year?
- Not necessarily, though for most sole traders they now coincide. The tax year is fixed at 6 April to 5 April. An accounting period is whatever twelve-month window you choose to prepare your accounts for. If you pick a different period - say to 30 June - your profit must be apportioned to the tax year, which adds complexity, so aligning the two is usually easiest.
- Can an accounting period be longer or shorter than 12 months?
- Yes. In the first year of trading, or when you change your accounting date, a period can be shorter or longer than twelve months. Companies are slightly different: a Corporation Tax accounting period can never exceed twelve months, so a long set of company accounts is split into two periods for tax.
Tax jargon, decoded.
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