what is accounting period?

An accounting period is a period with reference to which United Kingdom corporation tax is charged.[1] It helps dictate when tax is paid on income and gains. An accounting period begins whenever a company comes within the corporation tax charge, and whenever an accounting period ends without the company ceasing to be within the charge. There are a number of rules about when an accounting period ends, and we look at each of these below. Often an accounting period coincides with a company's period of account. This is the period for which it draws up accounts, [2] except for a life assurance company, where it is the period for which it draws up its periodical return.[3] However, periods of account and accounting periods do not necessarily coincide. An accounting period begins when:[4] the company comes within the charge to corporation tax. A company usually first comes within the corporation tax charge when it first acquires a source of income.[5] However, it will also come within the charge if it commences business but is not already within the charge.[6] Overseas companies usually come within the charge if they become UK resident or start trading in the UK through a UK permanent establishment;[7][8] an accounting period of the company ends, and the company is still within the charge to corporation tax; or the company does not currently have an accounting period and has a chargeable gain or allowable loss.[9] Chargeable gains and allowable losses are taxable gains and tax relievable losses that arise on the disposal of certain capital assets, for example on the disposal of the company's head office.[10] An accounting period ends on the earliest of the following:[11] the expiration of 12 months from the beginning of the accounting period; an accounting date of the company or, if there is a period for which the company does not draw up accounts, the end of that period; the company beginning or ceasing to trade or to be, in respect of the trade or (if more than one) of all trades carried on by it, within the charge to corporation tax; the company beginning or ceasing to be UK resident; the company ceasing to be within the charge to corporation tax. There are further rules to deal with windings up, life assurance companies and lessor companies. A UK-resident company is treated as coming within the charge to corporation tax (if it has not already come within the charge to corporation tax) when it commences to carry on business.[12] [edit] Example Suppose ABC Ltd, a UK resident company is incorporated on 1 August 20X1. It acquires a source of income (an interest-bearing bank account) on 1 September 20X1 and commences trading on 1 October 20X1 and continues trading throughout all other periods under review. It draws up its accounts for the following periods: 1 August 20X1 to 31 December 20X1 1 January 20X2 to 31 December 20X2 1 January 20X3 to 30 June 20X3 1 July 20X3 to 31 December 20X4 Then ABC Ltd would have the following accounting periods: 1 September 20X1 to 30 September 20X1 (from when it came into charge to corporation tax to the commencement of trade) 1 October 20X1 to 31 December 20X1 (to the end of a period of account) 1 January 20X2 to 31 December 20X2 (to the end of a period of account) 1 January 20X3 to 30 June 20X3 (to the end of a period of account) 1 July 20X3 to 30 June 20X4 (to the expiry of 12 months) 1 July 20X4 to 31 December 20X4 (to the end of a period of account)