As the fiscal year draws to a close, for businesses with little to no experience of doing the year end accounts (and even for those that have been doing it for years) it can pay to refresh what it is you need to do. It can also be very helpful to find out some hints and tips about how to work smarter both now and in the future. The end of year accounts can be a real head scratcher, especially if you’re not organized.
With that in mind, let’s start at the beginning.
What is the year end?
This is the name given to the day on which a company’s yearly financial period ends. It is also the day that starts the beginning of a countdown until you have to send HMRC and Companies House the required documentation. For many businesses, the financial year runs from the 1st January until the 31st December.
At the end of the period you will need to file a company tax return with HMRC. This contains details of your business income as well as any tax allowances or expenses. The figure that remains, which is your yearly profit, will be used to determine how much tax you need to pay. You also need to do your annual accounts and submit these to HMRC. This will include your income statement, statement of financial position and any other footnotes. You will only need to submit two of these three to Companies House.
How to prepare
In order to make sure everything is ready to submit all of this required documentation, it is necessary to get your expenses in order. Every single pound you spend as a legitimate business expense can be taken off your profits, thus reducing the amount of tax that you pay. These expenses need to be ‘wholly and exclusively’ for the business.
You also need to round up any overdue invoices. Some people just take ages to pay. It’s an annoyance at any time of year but when it comes to the year end it can be a particular problem. You should start chasing your invoices early and then when they are paid you need to factor these in to your company accounts.
Of course, this comes with plenty of paperwork. You need to have records for everything to back up your numbers. That means making sure you have the right statements of accounts from suppliers, bank and credit card statements, and records of any other income that you received during the year. The deadline for filing all of this is 12 months after the end of the accounting period it covers. You need to pay any corporation tax within nine months and one day after this period. If you miss a deadline then you may be eligible for a fine.
Top tips for making the process easier
OK, so now you know more or less what is required (if you didn’t already), but what you really want to know is how to make this process easier. Accounts don’t have to be a headache, and if you follow the tips below, you can make your year end a great deal less stressful.
Defer your income
You pay tax on the income you make, but did you know that you can defer some of your income and pay tax on it in the future? If you receive regular payments until late December, then it is possible to pay tax on this income in the following year, even though the invoice is dated for this one. This helps to keep taxable income low, and reduces the amount you pay this year.
Consult an accountant
If all these numbers and bits of paperwork are getting you down, then it might be a good idea to get an accountant to handle things for you. They may have a better idea of what tax liabilities do and don’t apply and can keep on top of your accounts in a more organised and professional way, leaving you free to run your business.
If you’re going to do it yourself, then start early. Deadlines can really ramp up the pressure and if you’re unsure about what needs doing then it’s going to take even longer to get your head around it. Set some time aside each week and remember that little and often lightens the load.
There are various things that can count as legitimate deductions. For example, a certain amount of spend on your staff Christmas party can be written off, as can gifts to employees. So, it can really pay to be nice.
This is perhaps one of the best ways you can save time and effort on your end of year accounts. If you’re tired of sorting through shoeboxes full of crumpled receipts, then you need to get some accounting software to fit seamlessly with your business. There is a wide choice of bookkeeping software out there, some of which is free to use at the bottom rung. It will fit in with your business processes, automate a lot of your processes and mean that everything is online as and when you need it. All your invoicing can be done and sent automatically and you can sync it with your bank account to show cashflow and accounts for the business. At the end of the year, all the information is already there in front of you. You simply submit as is
As you can see, you don’t have to make the end of year accounts a real headache. Utilize the tips above and it can be stress free. Get some accounting software, hire an accountant and there is no reason it has to be any more trouble than other time of year. And for a small business that relies on people being able to run the shop, freeing up this time could be invaluable in the long run. So, before next year comes around, get organised and set up the right accounting systems.