The end of your company’s accounting year is an important opportunity to review your financial position before your annual accounts and Corporation Tax Return are prepared.
Good year-end tax planning is not simply about reducing tax. It involves making sure your company’s financial records are accurate, legitimate expenses have been recorded and upcoming tax liabilities are understood.
Start by reviewing your bookkeeping. Make sure your business bank accounts are reconciled and that income, supplier invoices and expenses have been recorded correctly.
Missing expenses can cause taxable profit to be overstated, while incorrectly recorded personal expenses can create additional tax and accounting problems.
Review outstanding customer invoices as well. Knowing what your customers owe gives you a clearer understanding of cash flow and helps ensure your accounting records are complete.
Business expenses should also be checked carefully. Limited companies can generally deduct qualifying costs of running the business when calculating taxable profit, although the tax treatment depends on the type of expenditure.
Capital purchases such as equipment or machinery can be treated differently from ordinary day-to-day expenses, so significant purchases should be reviewed before finalising the accounts.
If your company employs staff, check that payroll records agree with your accounting records and that PAYE, National Insurance and pension liabilities have been correctly recorded.
Directors should also review money taken from the company. Salary, dividends, expense reimbursements and director’s loan account transactions can have different tax consequences and should not be treated interchangeably.
Dividends should only be considered where the company has sufficient distributable profits and the appropriate company procedures and records are maintained.
Pension contributions can also form part of tax planning. HMRC guidance confirms that qualifying employer contributions to registered pension schemes can generally be deductible when calculating business profits where the relevant conditions are satisfied.
However, pension rules can be complex, so significant contributions should be reviewed with an accountant or financial adviser before decisions are made.
Another useful year-end step is estimating your Corporation Tax liability. Knowing approximately what your company will owe allows you to reserve sufficient cash rather than being surprised when the payment deadline approaches.
For most companies, Corporation Tax is normally payable before the Company Tax Return itself is due, so businesses should not wait until the filing deadline before calculating the expected liability.
Year-end planning can also identify bookkeeping problems while there is still time to resolve them. Missing receipts, incorrectly categorised expenses or unexplained bank transactions are easier to address before annual accounts are being finalised.
Regular financial reviews throughout the year are even better. If bookkeeping is maintained monthly, the year-end process becomes much simpler and business owners have a more accurate picture of profitability and cash flow.
At EasyFig, we help limited companies organise their bookkeeping, review business expenses, prepare annual accounts and calculate Corporation Tax accurately.
Approaching your company year end? Book a free consultation with EasyFig today.