Are you planning for business year end?
Your tax returns were filed on time, and you feel pretty content! It’s almost a year before you have to start thinking about finances. You might be wrong. Here are some things you need to think about, regardless of whether you’re a sole trader and director of limited companies.
What are the benefits of business year end planning
You can rest assured that the taxman will demand a portion of your profits and if you have had a successful year. To reduce your tax bill, there are steps you can take before the year ends. You should ensure that the transactions are properly recorded and cleared your bank statements in order to include them in the year’s accounts.
Tax bills can be reduced by planning sensibly
Spending money can lower your profits, as we all know. Spending money on unnecessary things will only be allowed for tax relief when it’s ‘wholly’, ‘exclusively’ and ‘necessarily’ for your trade. Also, it’s not worth spending money you don’t have to in order to reduce tax.
How can you use your profits to reduce your tax bill?
Buy assets to be used by your business.
The best time to purchase new equipment is right before the end of your fiscal year. Capital allowances can be claimed, which could reduce your taxable profits. You can get 100% back on your tax bill from HMRC for certain items. If you are unsure of what item(s) to claim, consult your accountant.
Repair or service any equipment
Get someone in or have a go at doing it yourself to save money, but whatever route you go, this should be done before the year ends.
Recover any outstanding costs
You should file your mileage claims promptly if possible. Also, if money is owed for items purchased by the company, you need to get it done quickly.
Examine salaries and bonuses
This is the best time to reward yourself for work done in the past year, or consider giving your boss a bonus or pay increase. This can help reduce your tax liability if you do it before year end. You should know the tax implications on your personal income to avoid unpleasant surprises when you file your tax returns.
Invest in your pension
In the months leading up to your year-end, it’s a great time to start thinking about retirement and to increase your pension. You can reduce your tax burden and save money on retirement by getting a pension. It is important to ensure that all payments made to the pension company are done before the end of your financial year. Talk to your accountant if you unsure.
Get your company in the most profitable financial position
Saving tax is not all that matters. If you’re looking to finance your growth or get loan funding, you will need strong business results.
Sales targets to be met
Your business should achieve sales goals that allow you to pay bonuses to your employees. It is difficult to find new employees right now, so it can be crucial for your business that you keep your staff happy.
You can get more money from customers by chasing them
Profit is the key to success, while turnover is vanity. Cash flow is the king. Profits are wonderful, but it is important to get paid. Ask your customers to make payments before the end of your year. If you have money set aside to go into your pension or buy new equipment, this is even more important.
Checklist for the year end of a business
To ensure that you’re super organised at the end of the year, there are additional actions to be taken.
Stocks are available for purchase
You need to be able to count the stock in your inventory (or stock) at the close of each year. It is important to count it, check the condition and take a note of any that you need to write off.
A stock-take should be done on the last day of each financial year or close to it. It is best to perform the stock-take on a calm day, when there are no stock deliveries. Calculate the original stock cost to determine the stock’s total value after the stocktake.
Examine your fixed assets
Check that your Fixed Asset Register (or your list of equipment) has been updated and includes all recent purchases. Keep track of any items you sell during the year, as your accountant will be interested.
Make sure you have all your papers in order
Gather information including loan statements and new lease agreements as well as your bank year-end statements. It should be sent to your accountant so that you can keep follow-up questions down to a minimum.
Review your debtors
At the end of each year, make a list with all outstanding debtors. You can mark some outstanding invoices as bad debt if they are extremely old or you suspect that they will not be paid. You can phone the customers and ask them why they aren’t paying. Or you could write a letter to make a last demand. Before you write them off, make every effort to get the money.
Find out what your suppliers owe you
Decide which creditors should be paid first so that you do not upset your suppliers. Talk to suppliers if cash is short and negotiate longer terms.
I know this is extra work, but it is well worth the effort as the financial rewards can be big 🙂
If you liked this blog post Planning for business year end, then make sure to check out our last one: 5 tips to reduce your tax bill.
If you want to discover how we can help your business, Quest Birmingham Accountants offers the following services: Tax Services, Self-Assessment, VAT, Payroll, New Business, R&D Tax Credits, Annual and Management Accounts, Tax Returns, Self-Employed Accounts, Business Planning, Business Tax, Accounts Services, Bookkeeping, Pensions, and UK Tax Deadlines.