When you set up a business, you choose the accounting period that will work best for your business. But whatever accounting period you are working to, it is absolutely vital that you have clear planning in place to ensure that your financial loose ends are all tied up and your documentation is ready for the end of your own financial year.
In short, you need to proactively plan for your year-end, and you need to start doing this as early as possible!
File your returns at the right time
Accounting year-ends can be set at any point of the year. And the accounting period you choose needs to take into account both your business tax requirements and your personal tax liabilities.
The tax year ends annually on the 5th April, and you are required to file your personal self-assessment tax returns by 31st January every year. So both those dates need to be worked into your year-end planning to make sure you are on the ball and collating the right information for both your business and personal returns.
Start your planning sooner, rather than later
In terms of planning, your aim is to understand your tax liabilities across the board and to then plan ahead and formulate a year-long tax plan that maximises your profit and minimises your tax costs in line with your circumstances.
To create a plan that is comprehensive and robust, you will need to consider every aspect of your business and ask yourself some pertinent questions:
- What are the big costs you know will be incurring this year, and can all these be written off against your tax profits?
- Which tax liabilities relate to your business? For example, corporation tax, VAT, and any capital gains you have made during the year.
- Should you make any capital expenditure before year-end?
- What are your personal tax liabilities? For example, what is your income tax liability?
- Have you made use of any of the available tax allowances or enterprise incentives that could potentially cut your tax spend?
- Do you have plans in place to review your aged debtor lists and start highlighting the bad debts that could cause issues further down the line? Bad debts can be written off and are an allowable tax deduction.
- Do you have stock provision to take into account and how often will you review this? Specific stock provisions are also an allowable tax deduction.
- Is there potential for you to defer any income in the short term to reduce the profits that may be liable to corporation tax?
- What level of dividends to pay your shareholders?
- Are there any plans to change the share ownership of the company? What level of pensions contribution will the company be making for you, as the owner-manager, and for the rest of the management team?
- Can any of your expenditure be classed as research and development (R&D), making an R&D Tax Relief claim a possibility?
- Have you thought about your directors’ loan account and whether you’re going to pay interest or be overdrawn?
As you can see, there is a multitude of elements to consider, making year-end planning a complex and time-intensive task. But the long-term benefit of planning early, and ironing out the problems you encounter, is significant.
Think about the future of the business
There’s also a need to think about the future of your business and where you see the company evolving over the next 12 months and beyond.
- Are you going to change direction, or will you look to break into a new market?
- Where do you see your business going in the next 12 months?
- Where do you see yourself and your business in 5 years’ time?
- What position do you hope you and your business will be in?
Talk to your accountant early in the year
These are various areas of the business that you should be thinking about – and discussing with your accountant – at least six to eight weeks before the account year-end, and preferably well before this.
Keeping your accounts, record-keeping, and financial management up to date throughout the year means you are prepped and ready when you need a record of your accounts.
Many businesses are now moving over to cloud accounting systems, such as Xero online accounting software, to help them get instant access to their accounts and financial information at any point in the year. When you have such simple, straightforward access to your business accounts and information, your accountant can be far more proactive in assisting you with your year-end planning and the future strategic thinking of your business.
Invest your time wisely and plan ahead well before year-end. You not only make the whole year-end process less stressful, but you can also end up saving both tax and business time as well.
Talk to us about your year-end planning
With your accounting and bookkeeping kept up to date throughout the year, and a clear year-end plan in place, you have clearer visibility of your future tax liabilities and a more informed view of your strategic future.
Make year-end planning an ongoing part of your regular meetings with your accountant, financial advisers, and other professional advisers and reap the benefits when it comes to your business’s year-end.
If your year-end is fast approaching and you need professional help with your planning, please do come and talk to us.
Contact your local Saint & Co office and arrange a meeting with your advisor.