Financial Reporting Services in SheffieldA snapshot of the important numbers
What are Accounts?
Accounts are a snapshot of how well your business has performed in the last financial year. Sometimes known as financial statements or financial reports, but they all mean the same thing.
For sole traders and partnerships, year-end accounts will form the basis of the business owners’ self-assessment tax return.
For a partnership, the year-end accounts will also state how the profits of the business are split between the partners. The accounts will also show any amounts that have been taken out of the business, known as ‘drawings’.
For owner-managed limited companies, the limited company accounts will house details of the directors’ salaries and the dividends paid to shareholders, which will need to tally with their self-assessment tax return.
The year-end accounts provide invaluable information about your business. You can see if the margin on your sales prices is set appropriately and how the latest performance compares to last year.
Movements in sales and expenses are visible, allowing you to make better decisions in the future. Unusual amounts are highlighted and can then be investigated. Having year end accounts brings you closer to your business and will help drive success.
Banks will also prefer to see a set of accounts for self-employed applicants looking to raise finance or apply for a mortgage.
Deciding on a year end
Limited companies, partnerships and sole traders are free to pick whatever year end they like.
Many business owners will pick a calendar year or the tax year (either 31st March or 5th April).
Picking the tax year for your company’s year end will ensure that the amount of tax owed to the the taxman (HMRC) is based on the latest finalised accounts, and therefore as current as possible.
Some business owners prefer to have a tax year end, because they have a better feel for what their tax liability might be. Opting for the 31st March or 5th April will also avoid any complicated calculations for sole traders or partners.
Alternatively, you might choose a year end that suits your business. A quiet time of the year when you can have the time get everything together may be the perfect time for your business.
What about tax?
Part of the process of putting together your businesses accounts is to also calculate how much tax is owed to the HMRC.
As a sole trader, you should look to prepare sole traders accounts or partnership accounts well ahead of the tax return deadline of 31st January. Accountants tend to be busy on the lead up to the deadline. Leaving it until the last minute may mean they can’t fit you in.
Limited companies have different deadlines to pay their tax, typically nine months from their year-end date. At this time, the accounts and tax returns are due, but it’s always best to check on Companies House’s website what the company accounts filing deadline is.
Rushing can lead to errors and there may be receipts or bank statements you need to find. Give yourself as much time to prepare the accounts as possible.
It also allows you to consider if you’ve claimed everything you’re entitled to and whether there are any tax planning opportunities available.
If you would like to discuss your financial accounts, please get in touch.