Topics Covered Hide
- 1 LFY meaning – A brief introduction
- 2 Why some companies use a different fiscal year
- 3 Fiscal year end versus tax year end
- 4 A few considerations regarding the LFY meaning
- 5 Different dates for different countries
- 6 Understanding the fiscal year and its particularities
- 7 Requirements for the tax year
- 8 Conclusion
LFY – meaning Last Fiscal Year – refers to the most recent fiscal year of a company. The term is used throughout the next fiscal year. Until the fiscal year changes again, the LFY is a valid term referring to the previous year.
The fiscal year change is useful for everyone. Companies can assess their performance. Self-employed professionals must do their taxes. Employees know that their holiday allowance renews at the end of the fiscal year too, so it is equally important for everyone.
Apart from the LFY meaning, what else should you know about the last fiscal year? This post will give you a few details about its importance, as well as things you need to do to ensure you follow all laws and regulations.
LFY meaning – A brief introductionThe LFY covers the most recent 12 months from a fiscal point of view. Basically, this is the accounting period and comes with a series of changes. On the same note, this is also the optimal time to assess the financial performance over the past year.
In most countries, the LFY brings in some requirements too. For example, companies must list the fiscal revenue. This is only one of the rules, as companies need to perform more accounting tasks throughout the year.
This specific date brings in all kinds of statistics and estimates. Company managers, investors, and analysts will rely on all these numbers and metrics to make some forecasts for the upcoming year, but also to understand what went right and what went wrong.
A fiscal year covers a whole year, but it does not necessarily match the calendar year – it depends on the country. The annual period is used by different businesses to report their finances to governments. All their financial statements and accounting procedures end at that date.
In some jurisdictions, the fiscal year is also referred to as the budget year. Apart from businesses, governments also rely on the financial year to report their financial results. They discuss budgets, make plans for the next year, and analyze the financial growth or decline over the last one.
The fiscal year will run for 12 months. It usually begins on the first day of a month and ends on the last day of the previous month, but a year later. Sometimes, the financial year matches the calendar one. Other times, it does not.
In some countries, you will be surprised to find out that the financial year runs between the 1st of July and the 30th of June. In other countries, it runs from the 1st of April to the 31st of March. However, corporations can go in a different direction.
While the fiscal year chosen by the government does come with some changes whenever it resets, the truth is corporations can choose what 12-month period they report for. Once they decide on a date, they normally have to stick to it.
This is not a general rule – in some countries, your company may have to follow the fiscal year set by the government. However, if they do have the option to choose, they can do it differently, based on the seasonality of the company, as well as the industry.
Many large corporations would rather just stick to the fiscal year set by the government. After all, this date also brings in updates on inflation and other financial elements. It is simply more convenient to adjust things this way.
Now, the LFY meaning is different for each company. This is because the last financial year does not refer to the fiscal year set by the government but do the 12-month reporting period chosen by the company.
While the management will find such information more important for further changes and estimates, the truth is outsiders will also look into it. After all, fiscal year details are public – most of them. Therefore, investors can look into them and determine whether or not a company is worth their money.
Analysts can make predictions about the future, while financial professionals can indicate companies with potential growth over the upcoming year. You get the idea – everyone will benefit from such information. On the other hand, the government is only interested in taxing you correctly.
Again, while not always a general rule, the fiscal year ends at the end of a quarter.
Why some companies use a different fiscal yearThe fiscal year of a company may not necessarily match the fiscal year of the government. Most companies will follow those dates, but this is not a rule. Now, why would you change the year? What kind of benefits do you get from it?
First of all, the application of a fiscal year varies from one country to another. It depends on where you live. If you are into offshore applications and you like the idea of establishing businesses in different parts of the world, you will most likely deal with different dates everywhere – quite confusing.
Take Australia, for example. The fiscal year in Australia goes between the 1st of July and the 30th of June. How about Austria? The fiscal year matches the calendar year – the 1st of January to the 31st of December. In the USA, it goes between the 1st of October and the 30th of September.
People with businesses in different countries have more options. You can change the fiscal year on all of them, so these dates match – easier for you. If you have an accountant in each country, it makes no difference. But if you have an accountant for all these businesses, it is much simpler.
The business seasonality is another major consideration that can make a difference. In fact, this is one of the reasons wherefore people change the fiscal year, even if they do not run any other businesses abroad. This aspect is extremely important for companies with largely seasonal activities.
If local laws and jurisdictions allow you to change the fiscal year, it makes sense to choose the ending date at the end of the trading season. For example, if you run a business for tourists, it makes sense to set the closing date when the season ends or a few weeks after.
Think about companies working in agriculture too. Normally, their fiscal year ends when the harvest season is over. This is a good practice of accounting. You do not want to be asked for a fortune in taxes six months after the harvest season is over.
Instead, you want to pay all the taxes while your bank account is full. You want to take all these things out of the way. Then, you check your leftovers and can make a decision regarding your investments, further growth, and so on.
Then, how about retail businesses? Their busiest season is in December and January. Obviously, they want to capture all these numbers before the fiscal year ends, so it makes sense for such businesses to finish the year on the 31st of January.
Unsurprisingly, some managers choose the fiscal year dates with the possibility to save some money in mind. Most firms out there will end the year on the 31st of December. It makes no difference what the country’s fiscal year is – they simply want to match the calendar year too.
With this idea in mind, it is pretty clear that most accounting firms – including self-employed professionals – are busier than ever at the end of the year. December and January are extremely busy for them, so they tend to charge more during these times.
Picking a different time of the year – when accountants do nothing – is better, especially if you run a small business and keep costs low is imperative. Sure, large corporations will not really be bothered – they might as well hire an accounting team in house.
But if your budget is limited and you are just trying to grow, keeping prices low is imperative.
As if all these were not enough, availability may also be limited during busy times. You may not be able to reach the best experts on the market because they are busy with large corporations paying big money. To avoid competition, simply avoid big companies.
Then, you can avoid peak seasons. Many companies peak in December, meaning your accountant is super busy anyway. It might be easier if you set the ending date on a less hectic date. The same goes when trying to get some data for further planning – you want to do it with a clear mind.
Think about the cycle of your business as well. If you gain lots of profit in August, but you purchase your inventory in December, the calendar year-end may not really be the best option because the final numbers do not reflect the right financial condition.
Instead, ending the fiscal year on the 31st of July would be a better idea.
Furthermore, avoiding conflicts with your partners or suppliers is also a good enough reason to change the fiscal year. If all your suppliers and partners prepare their taxes at the same time, you might as well go for a different time.
You may need financial reports from such companies to handle your accounting, so opt for a time when your partners and suppliers have more time off and can assist you. A month later is a good general rule of thumb.
Fiscal year end versus tax year endIn some countries – such as the USA, the fiscal year end and the tax year end may not always coincide. However, less experienced business managers tend to use both terms interchangeably, yet this is a mistake.
The IRS in the USA uses both terms to describe the same accounting period – a 12-month time frame. The IRS assesses each date in order to determine how much tax a company needs to pay. But then, there is one major difference.
The fiscal year is internal. On the other hand, the tax year is external. Financial records obtained at the end of a fiscal year are normally given internally. They are given to shareholders, managers, accountants, and so on.
The general public may also have access to them – handy if a company is looking for investors.
On the other hand, the financial information obtained at the end of a tax year is given to the IRS. Again, different countries have different rules. In the USA, if you have a different fiscal year, you must file tax by the 15th day in the first quarter after the end of the previous fiscal year.
A few considerations regarding the LFY meaningThe LFY meaning is less likely to affect the operation of your business, but it does pay off by having all the numbers ready for further estimates and accounting. However, there are also a few considerations that could make the difference.
In theory, the last financial year is used to predict the upcoming year. Sure, unexpected situations may always arise. Take the recent coronavirus pandemic, for example – it changed everything overnight and caused many businesses to collapse.
You get the point – there are plenty of exceptions out there. For example, one-time financial issues could cause an ineffective result. Any anomaly of such kind can change the final numbers, even if it is less likely to occur throughout the next year.
It could be a fire or perhaps an upgrade of your equipment – you would not have to do it again for another decade. Maybe a special event occurred – take the recent Queen Elizabeth’s jubilee celebrations in the UK.
Imagine a company selling a facility for $1 million. The money is part of the revenue, so the LFY will show the income in all the statements. Now, unless the company sells such facilities on a regular basis, this one-time operation will affect final numbers and comparisons.
Internally, people would know that this extra amount of money was not generated by natural growth. It was not gained over day-by-day activities. However, others may imagine that the company generated this kind of money due to its daily operations, which would be inaccurate – a trend that does not really exist.
Different dates for different countriesHave you ever wondered why different countries have different dates for their financial years? Why do some countries start on the 1st of April? What other countries follow this trend? If you think most countries follow the calendar year, you are wrong – in fact, many of them do not.
India, for instance, goes from the 1st of April to the 31st of March. There is a bit of history in each country’s choice. When it comes to India, the East India Company came to India at the beginning of the 17th century.
The fiscal year was changed to sync all activities with the dates in the UK. Despite becoming independent, India kept this date.
Some countries follow different systems because they seem effective. They find out why one country or another follows a system, and if they find the reason good enough, they stick to it. Some others chose these dates based on what most of their local companies deal with.
Along with the UK and India, many countries that used to be part of the British Empire follow the same example. Then, countries like Australia, Bangladesh, Dominica, Egypt, Pakistan, or Uganda run fiscal years from the 1st of July to the 30th of June.
The fall season – the 1st of October to the 30th of September – makes sense in the USA, Thailand, Haiti, Myanmar, and Trinidad and Tobago, among a few others. The list is a bit longer when it comes to countries following the calendar year too:
- Saudi Arabia
Then, there are a few countries out there that stand out with their unusual dates:
- Nepal - 16th of July to 15th of July
- Afghanistan - 21st of December to 20th of December
- Iran - 21st of March to 20th of March
- Ethiopia - 8th of July to 7th of July
- Samoa - 1st of June to 31st of May
Understanding the fiscal year and its particularitiesNow you know the LFY meaning, but what do you actually know about the fiscal year? The fiscal year is basically that 12-month period that governments and businesses rely on for financial reports but also to help with upcoming budgets.
Most commonly, this year is extremely important for accountants. While it can start on the 1st of January, like the calendar year, this is not a general rule. Take universities, for example. Most of them will change their fiscal years based on the school years.
You get the point – the cycle of your business is more important and depends on what industry you activate in. If you trade year-round, some periods are busier than others. For maximum effectiveness, the end of the fiscal year should be about a month after the peak times.
There are more financial elements that depend on the fiscal year – tax filings, external audits, and reports.
Requirements for the tax yearDifferent countries have different requirements for the fiscal year, so you need to do your homework upfront – especially if you are planning to start a business in a different jurisdiction. Discuss this aspect with local authorities or an accountant.
In the USA, the classic IRS system is based on the calendar year, so there are no major issues. Those who pay tax based on the fiscal year will need to make a few adjustments but also deal with the paperwork and certain forms.
Most taxpayers need to file before the 15th of April. Fiscal year taxpayers need to follow some other rules. They need to do it by the 15th day of the fourth month once the fiscal year is over. For instance, if your fiscal year ends on the 31st of May, you have time until the 15th of September.
In the USA, companies that can adopt a different fiscal year will mostly do it for reporting purposes. Not all companies are eligible for it, though. You have to submit the first income tax return for the respective fiscal year.
Companies that can change from a calendar year to a different fiscal one need special permission from the IRS. There are some criteria to follow as well, and things may change on a yearly basis, so check everything upfront.
Finally, it is important to know that the fiscal year does not necessarily have to be a date. Apple, for example, closes the fiscal year on the last Saturday of September, which may fall on different dates. In 2020, for instance, it fell on the 26th of September. Every year will be slightly different.
The IRS wants you to seek permission before making such changes, but other countries have other rules.
ConclusionAs a short final conclusion, the LFY meaning can go in a few different directions. It refers to the last fiscal year, but this last fiscal year can have more meanings, depending on the jurisdiction. There are all sorts of rules you need to pay attention to, especially if you do business abroad in an unfamiliar environment.
Most of the information in the last fiscal year is used internally by investors and shareholders, but it can also be public for potential investors. Certain aspects are reported straight to the taxation authorities, though – check all the rules or hire an accountant.