As they try to hold everything together through the frenzy of the holiday season, keeping careful track of their accounts is often the furthest thing from a business owner’s mind. This could spell trouble in a few month’s time however, as the end of the financial year approaches, and businesses prepare to file their year end. For a limited company in the UK, this is done by filing a corporate tax return to HMRC, and abbreviated accounts to Companies house.
Preparing to do this, is unfortunately a herculean task for many small business owners. After all, running a business is more than a full-time job, and many business owners don’t even keep thorough running accounts throughout the year, which can make the job of preparing their records a very tough and time consuming job. Worse yet, procrastinators who wait for the last few weeks before the deadline to rush through the process might one day find HMRC at the door with a list of questions they aren’t prepared to answer.
With tax, the name of the game is always preparation. For most businesses, getting started months in advance is not too early. That means getting your books in order to accurately report your business’ income, and the state of your business’ finances in the coming financial year.
Take stock of what you have
First off, businesses need to ensure that their current accounts match up with their records. For some businesses, that might mean first tracking down those records to provide a framework from which to work. To get a complete picture, this also involves chasing down any outstanding invoices, and taking inventory to ensure that no stock or funds have gone missing. If there are discrepancies between what your business has, and that your records suggest it should have, it’s important to investigate these before submitting your accounts at the end of the year.
Chasing down missing payments, of course, is an involved and time-consuming process on its own. A good way to simplify this process is to make use of a collections specialist, or to use invoice financing to collect the majority of the missing funds immediately. Your financial institution will then move to collect the missing payment on their own, before issuing you the remaining funds, less their predetermined fee.
Track down all your expenses
Business expenses are deducted from your profits, and can greatly reduce your tax burden if tracked properly. In light of this, it’s well worth every business owners’ time to work with employees to ensure that all receipts and other documentation of business expenses from throughout the year are collected.
Regarding HMRC, a valid expense is one that is incurred “wholly and exclusively” for business use. Most often they’re a large number of small expenses such as for food, transportation, utility bills, printing, or postage that add up over time. By keeping close track of these, and collecting sufficient documentation, small businesses can often greatly reduce their taxable profit, and save a lot of money for the coming year.
Get records for everything
When it comes to tax issues, more records are always better. That means collecting not just expense receipts, but also bank statements, contracts, and supplier statements of account. It’s also an excellent idea to ensure that all these documents are well organised and easy to access. If any are missing, now is an excellent time to track them down or request them from the relevant parties, rather than when you’re scrambling to deal with HMRC. If officials come knocking with questions, then, you’ll be able to respond instantly with evidence, minimising any future interruptions and ensuring that any claims you make can be properly backed up.
Verify employee information
It’s important to remember that businesses are legally responsible for their employees’ income tax and national insurance contributions. This means it’s especially critical to verify employee data to make sure that all payments were handled correctly. Any mistakes in this area can come back to cause trouble in the form of unexpected costs in the future. Worse yet, no business owner wants to find themselves in a situation where they’re forced to ask an employee to return part of their wages due to an accounting error to cover a tax underpayment.
As business owners begin planning for the time after the hectic holiday season, tax is an issue that should be on everyone’s mind. By taking the time to plan for the end of the fiscal year now, business owners can ensure that they won’t face any unwelcome surprises when the time comes. More importantly, they can ensure that their businesses can transition smoothly into the new year, maintaining their operations and growth plans without the risk of unwelcome interruptions.