Switching to a financial year: when and how to change the tax period?

HAVE YOU CONSIDERED CHANGING YOUR TAX PERIOD FROM A CALENDAR YEAR TO A FINANCIAL YEAR?

A change of the tax period from a calendar year to a financial year is possible under Section 3(5) of the Accounting Act.

Conditions for changing the tax period:

• The tax period can only be changed with effect from the first day of a calendar month.
• If an accounting entity uses a financial year, it must keep its accounts using double-entry bookkeeping.

An existing accounting entity can adopt a financial year as its accounting period by giving written notice to the tax office at least 15 days before the change of the accounting period.

An accounting entity can use a financial year as its accounting period from the day it is established. It must notify the tax office of this within 30 days of the day it is established. If the notice is not delivered to the tax office within the prescribed period, the accounting entity cannot use a financial year as its accounting period.

Procedure for changing the tax period:

1. The accounting entity fills in a Notice of Change of Tax Period and submits it to the tax office.
2. The accounting entity starts using the new tax period from the day stated in the notice.

A change of the tax period affects:

• The accounting period – the accounting entity starts using the new tax period from the first day of the calendar month stated in the notice sent to the tax office.
• The date for filing the tax return – the accounting entity files the tax return for the first tax period to which the change applies within 3 months after the end of that tax period.
• The date the tax is due – the tax for the first tax period to which the change applies is payable within 3 months after the end of that tax period.

Example of a change of the tax period:

An accounting entity that has so far used the calendar year wants to change its tax period to a financial year starting on 1 October 2024.

1. The accounting entity notifies the tax office at least 15 days before the change of the accounting period by submitting a notice through the portal of the Financial Administration of the Slovak Republic (Finančná správa).
2. For the period from 1 January 2024 to 30 September 2024, the accounting entity must close its books and prepare extraordinary financial statements (for an accounting period shorter than 12 calendar months).

Under the Income Tax Act, when the tax period changes from a calendar year to a financial year, the period from the beginning of the calendar year to the day before the change of the tax period to a financial year is treated as a separate tax period. A tax return is filed for this separate tax period too, within 3 months after it ends.

Consequences of changing the tax period for the accounting entity:

• The accounting entity files a tax return for the first extraordinary tax period, i.e. from 1 January 2024 to 30 September 2024. The accounting entity is required to file this tax return by 31 December 2024.
• The tax for this tax period is payable by the end of December 2024.

Changing the tax period from a calendar year to a financial year can pay off in the following cases:

• If the accounting entity has a seasonal business, characterised by higher income in some periods of the year and lower income in others. In such a case, changing the tax period to a financial year can lead to a more even distribution of income and costs over the year.
• If the accounting entity has foreign activities that are affected by calendar periods other than the calendar year in Slovakia. In such a case, changing the tax period to a financial year can simplify accounting and taxation.
• If the accounting entity has specific needs that cannot be met within a calendar year. For example, if the accounting entity does business in tourism, it may be more advantageous for it to use a financial year that starts in summer and ends in summer.

Changing the tax period can also have the following disadvantages:

• More administration – the accounting entity must keep its accounts using double-entry bookkeeping, which can mean more administration.
• Higher costs – changing the tax period can lead to higher costs for accounting and tax advice.
• More complicated communication with the tax office – the accounting entity must communicate with the tax office about the change of the tax period, which can be more complicated than when using the calendar year.

Conclusion

The decision to change the tax period is an individual one and depends on the specific circumstances of the accounting entity. The accounting entity should therefore consult an accountant or tax adviser before making the change. If you are considering changing your tax period and are not sure whether it is advantageous for you, do not hesitate to contact us.