Financial statements are vitally important and a key plank in a good system of planning tax payments. As well as forming the basis of the tax liability, and for limited companies filing with the registrar of companies, financial statements will be important to providers of finance and for credit reference agencies. It is worth making the extra effort to get the statements right.
Preparation of year end financial statements starts at the date of the year end. One of the most overlooked areas in financial statements is stock and work-in-progress. If your company has stock, you should ensure that it is counted on the last day of the financial year and valued at cost. The same applies of any work in progress. You will also need to provide your accountant with details of debtors and creditors.
When the accountant has prepared the draft financial statements they will arrange a meeting to discuss them and to settle any queries. The discussions would also focus on what the key ratios (such as gross profit per centage) indicate about the condition of the business; any unusual patterns in the expenses; the business's future prospects and whether there is room for increasing profitability through measures such as cost-cutting. At this meeting you should ask your accountant to comment upon your accounting records and whether there are any steps you could take to improve them. This might result in the accountant reducing their fees for preparation of the financial statements.
Know your tax liability and plan for payment
At the meeting the accountant should give an indication of the tax liability arising from the draft financial statements. After the meeting the accountant will finalise the financial statements and write to you with the precise tax payments arising from them.
Key payment dates are January 31 and July 31 for the self employed. For small limited companies, corporation tax is due to be paid nine months after the end of the accounting year.
It is advisable to set aside a regular amount into a separate bank account for the tax liability. Otherwise it is easy for tax payments to catch businesses out, particularly when business is slack. Many continue taking the same salary out of a business even when sales have dropped, leaving insufficient funds for tax payments. Getting the financial statements early and being told the exact amounts owing and date of payment can focus entrepreneurs' minds.
Currently, if a business has difficulty making payments the HM Revenue and Custom's Business Payment Support Service (BPSS) can help. A helpline operates seven days a week (0845 302 1435).
So, getting accounting information in early means you will have sufficient time to discuss any issues with your advisers and shareholders and will enable you to plan tax payments. Good planning will avoid last minute panics.
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