As the year-end approaches, now is a great time for limited company directors to do some housekeeping on their accounting information.
This will make tax and accounts filing easier and we hope this checklist will help you do it.
What is a year-end?
A year end is the end of a business's accounting year. It’s the time documents of a limited company must be filed with HMRC and Companies House.
For limited companies, Companies House will set your accounting year end as a year after the end of the month in which you 'incorporated' your company.
Why year-end accounts matter
Year-end accounts matter because they provide important information to tax authorities, banks and investors. Plus you can use the numbers to work better with your accountant to improve business performance.
When to run your accounting year end?
The choice is entirely up to you, but typically businesses align their accounting dates with the financial (April) year.
This may be simplest option, but there are many facts to consider. You and your accountant should decide the best time to run your year-end accounts.
Whatever your financial year, a year-end will always include two documents:
- Corporation Tax Returns
- Abbreviated accounts
This document is filed with HMRC. By and large, a CT return details your company’s income minus the expenses. The remaining figure i.e. your profits are then used to decide how much corporation tax your company owes. Your corporation tax return is due 12 months after your first year end.
An abbreviated set of accounts is filed with Companies House. It details your company’s finances which must be made public in accordance to the Companies Act 2006. It includes assets, debtors and creditors. Your first set of abbreviated accounts is due 9 months after your company year-end.
What if I miss the deadline?
Of course, as with everything, HMRC has penalties in place to encourage limited company owners to file their CT600 and Abbreviated accounts before the deadline. The penalties increase with time, so if you are continually missing the deadlines, you can expect it to cost you dearly.
CT600 late filing penalties
- £100 – if you miss your filing date
- £100 – if you still haven’t filed after 3 months
- Increase to £500 – if you file late three years in a row
Abbreviated Accounts late filing penalties
- £150 - up to a month late
- £375 - up to 3 months late
- £750 - up to 6 months late
- £1,500 - Over 6 months late
How should I prepare?
The key to a smooth year-end is preparation. If you ensure your accounts are up-to-date, and run a few pre year-end checks, the whole thing should be a piece of cake.
- Check if you are claiming all expenses
Every penny you claim as a tax-deductible business expense is a penny off your business profits. And less profit means less Corporation tax. It vital that you claim all expenses you can before your year-end. HMRC’s rule says the expense must be “wholly and exclusively” for business use.
- Generate a cash flow statement
Cash is the fuel that runs your business. So you never want to be running near empty. Forecasting how much cash you will need to pay the upcoming week/month shows you to reserve enough to pay bills, including your employees and vendors. All you need is a simple cash flow statement listing expected cash expenses against expected cash payments.
- Check your P&L income statement
Your income statement lists revenue-generating items along with tax-deductible expenses. It's a useful way to see your profit and loss for the year.
- Review unpaid invoices from vendors
The easiest way to run your business is to get paid. So come year-end, become a debt collector and chase up all unpaid invoices. Follow up persistently. Once you have the money in the bank you can record and reconcile it properly into your accounts before the year-end.
- Think about your confirmation statement
Previously known as the annual return, it is a mandatory filing requirement. It basically summarises the details of your company name, registered office, details of directors and shareholders, secretary and the address where you keep your records. You will get an email or letter alert to your company’s registered address when it is due.
- Keep documents and file receipts
Maintaining documents and records are a core part of your business. Your accounts mean nothing if you don’t have proper records to back them up. So before you file your year-end make sure you have everything – right from statement of accounts from suppliers to bank and credit card statements, and records of income you have received.
How to use your year-end accounts?
- Create a budget for the following year
It’s never too soon to plan. By reviewing your P&L accounts, income and cash flow statements you will start seeing a pattern in things you need to plan better for the next year. By revaluating your expenses from the current financial year you will gain a better understanding of how you should focus in the new accounting year.
- Time for financial planning
Did you achieve your financial goals you intended last year? If so, great. If not, the run up to your Year End is the perfect time to think about some financial and tax planning. It will help minimise your tax bill in the immediate future, and also the long-term. This could include, bringing your spouse/partner into your business, paying money into ISAs, or diverting some of your income into a pension.
These steps will definitely help you get started. However, when running a limited company you should always seek qualified accountancy advice.