Preparation is key to success
Since company returns are due 9 months after the financial year ends, it’s easy to think that you have nothing to worry about and that there’s plenty of time to get things sorted.
If you use an accountant (which most with a limited company will do), it’s even easier to think that they’ll get it sorted for you because they have been paid for this service.
However, what you do before the financial year ends plays a big part in whether the handover to your accountant will be a smooth or stressful experience.
Your accountant will request information from you within the next 9 months and you may find that looking for that information may be time-consuming without the right preparation.
This article outlines the steps that will help to ensure you have a better experience and, hopefully, save on costs with an accountant.
Maintenance of business records
How you maintain your records is critical to your business. Disorganised records can put your business at risk of penalties. If you keep your records on paper or on spreadsheets, it can prove challenging and time-consuming to ensure your data is complete and your accountant may find it takes them twice as long to go through everything.
It’s becoming increasingly more common to use cloud-based digital software to maintain your records.
Review your transactions from the whole financial year so you can identify any missing documentation needed to support your year-end. If anything is missing, follow it up. Make sure it’s all stored and easy to find. If you’re using digital software, you can store it there.
Follow up any outstanding orders, look through all your sales to ensure all invoices have been sent out and raise any drafted invoices.
Open / Overdue invoices
Chase all open or overdue invoices, with the aim of getting paid before year-end. This helps you know that you’re paying taxes on the money that has been received. If you have digital software, you can automate the chasers and send out reminders every few days, eliminating the manual process.
Identify all bad debt you can write off and let your accountant know so they can adjust for them. This will help reduce your profits and your final tax liability.
Stock / Inventory
Review your stock/inventory for damaged stock and identify anything that is currently overvalued. Check quantity levels and ensure all sold stock levels have been adjusted to include anything that may have not yet been sent yet. A stock valuation can have a big impact on the final tax calculation.
Check to ensure your supplier balances map to supplier statements. If you see any differences, this could be down to you overpaying your supplier or duplicating costs in your records. You won’t want to have paid twice for a purchase or shortchange the tax you owe.
Ensure all your bank transactions have been explained or allocated to the relevant categories (if you are using digital software). Ensure your spreadsheets are complete, formulas are working, etc., and your bank account has been reconciled against the actual bank statements. As humans, we can make mistakes when recording information on spreadsheets but so can software when pulling in data feeds.
Check to make sure you’ve claimed all your expenses. For every £100 of allowed costs, you save £19 in corporation tax. Expenses can only be claimed if they’re exclusively for business purposes. Double-check to ensure that you’ve categorised your expenses correctly between expenditure and assets, if there is anything unclear make a note to follow up.
If you’re using digital software, see what your profits and corporation tax liability is looking like. If you were planning to make a large purchase after year-end, you may decide to bring it forward to the current financial year to help reduce the tax burden.
Employer pension contributions
If you’re planning on making any pension contributions, this is the time so you can secure the tax relief against your profits.
Make sure all your payroll records are accurate and up to date, ensure you have captured the salary for the last month of the year and documented any bonuses due or paid.
Accruals and prepayments
If possible, identify any accrued costs. These are costs where you are yet to receive the bills but relate to the current financial year. Similarly, find any significant costs you’ve paid for that cover periods beyond this financial year. Some examples of these costs include insurance, rent and rates.
So that’s the hard part done. The next bit of the process involves bringing all your information together to generate a statutory set of company accounts to cover the financial year, supported with a corporation tax return to calculate your taxes.
In most cases, this will be prepared by your accountant. However, if you do decide to prepare this information yourself, it would include:
Statutory accounts made up of:
Directors report: this describes your principal activities, who the directors are and provides a statement of the directors’ responsibilities
Income statement: this provides a high-level overview of your profit and loss for the financial year
Statement of financial position: this reports on the company’s assets and liabilities. It would also give you an indication of how much reserves are available for distribution to shareholders
Notes to the accounts: these assist the reader in understanding parts of the income statement and statement of financial position in more detail
Detailed profit and loss account: this provides detailed information on the profit and loss of the company
Company tax return
CT600: this is the high-level document detailing summary turnover, expenses, tax allowances, profit and the tax calculation
Computations: this supports the CT600 by providing further details on your turnover, what your expenses are made up of, is there anything that is disallowable, what allowances you are claiming etc.
When is everything due?
This varies between Companies House and HMRC.
The first deadline that you’ll need to meet is the submission of your accounts to Companies House which is usually 9 months after the financial year ends.
The second deadline is the payment of your corporation tax to HMRC – this is always due 9 months and 1 day after the financial year ends.
The final deadline is the submission of the CT600 to HMRC. This is due to HMRC by the end of the 12 months after the financial year ends. However, since you’ve already calculated your taxes and submitted your accounts to Companies House, it makes sense to get this submission actioned on or before the payment of your corporation tax.
What happens if you miss the deadline?
Companies House will impose a penalty of:
£150 if you are 1 month late
£375 if you are between 1 to 3 months late
£750 if you are between 3 to 6 months late
£1,500 if you are over 6 months late.
HMRC will fine you £100 for missing the CT600 submission deadline. In addition, if the CT600 is not ready then it is most likely that you are yet to pay your corporation tax liability which means you are incurring interest on a daily rate on the balance outstanding.
At the time this blog was written, the late payment interest rate was set to 2.6%.