Lee Murphy gives his advice on getting your business ready for the end of the financial year.
This year, April will mark the introduction of HM Revenue & Customs’ (HMRC) ‘Making Tax Digital’ initiative, which will affect businesses with a VAT threshold above £85,000. This means it is a good time to be thinking about financial matters.
It’s a particularly good time to think about how you or maybe your bookkeeper and accountant can make things not just faster and cheaper, but also help your business run more effectively.
Getting your finances ready for the year-end can seem a daunting task when you have lots of projects and quotes to also manage but taking a few steps now will save you a lot of time in the long-run.
It may be that you need to call in an accountant to help finalise books but there is much that you can do to lay the groundwork and cut costs. The good news is there are plenty of online tools available to support you in your efforts, many of which come free of charge.
Here’s some advice to help you get started.
Round off 2017/18
Making sure you end the last financial year on a high will put you in the right mindset for the next year.
It is a good time to start chasing down unpaid invoices, issuing reminders and getting outstanding invoices resolved so you can start 2019/20 afresh.
Many large businesses have April financial year ends and have budgets they want to spend before they disappear, so take the chance to make a few sales calls to any customers who may be under pressure to make budgets disappear before the year-end. It’s not unknown for some businesses to even agree to pay in advance just to use up money before it disappears.
Get ready for the taxman
With the year-end on 5th April, if you have not already done so you should pull together all the paperwork your accountant will need to submit your company accounts.
The checklist includes:
- Bank statements, including personal, savings and referrals accounts.
- Loan Statements, any details of loans taken during the year
- Business Credit Card, with details of any interest earned
- Finance Agreements, interest on any new hire purchase during the year will be a tax-deductible expense
- Payroll Records, include national insurance details, simply providing payslips is not enough.
- Sales Income, whether you’ve been paid for a completed job or not, you need to include details of income
- Petty Cash Receipts, include a note of the petty cash balance at the year end.
- Stock Value, make a clear estimate of any stock material
- Purchases and expenses details, if you are going to claim tax deductions you will need receipts as proof of purchase
Of course, most will have kept diligent records over the last year, but if you are finding paperwork a challenge there is plenty of support online, and if you use bookkeeping software you will already have this information ready.
If you don’t use software making use of bookkeeping software, even free software, will help you save time by being be organised. For instance, most bookkeeping software now will import information automatically from your bank and match with your expenses and invoices, making it much easier to see that the right money is coming in and out.
Payroll year end
Once you have submitted your return to HMRC you will need to issue any employees who were working on the final day of the tax year with P60s. This document summarises their pay and deductions for the year. Remember, your employees need to receive them by 31 May.
Making Tax Digital and what it means for you
From April all businesses above the VAT threshold of £85,000 will be required to you submit your VAT return via an electronic upload using accounting software that will need to be aligned with the HMRC system.
The aim is to make the entire process much easier and possibly cheaper too.
For some businesses the move to MTD will come with minor costs. If your existing software will not provide the link, you will need to switch to one that does.
HMRC will also be providing a personalised digital tax account from HMRC for you to log into to see how much tax is owed. This may be a sobering experience, but at least it means you won’t be landed with an unexpected tax bill – something that has caused many business owners serious financial problems.
If you are one of the many building business that still uses Excel or even paper, the switchover to software will have its benefits – not least cutting the amount of time you spend on paperwork. Also, as most systems come with Apps you could even chase late payments or issue invoices while on site.
If you continue to use paper and Excel after Making Tax Digital, it could be an expensive and time-consuming activity. It will simply mean that you or your accountant will have to re-enter the data using HMRC approved software every three months. The result will be a lot of extra effort but with none of the benefits that online software has.
Taking the time and care to put your finances in order will make life easier for the next year, showing you how much money you have to invest and grow your business. Now is the time to get started.
Lee Murphy is the founder of Pandle, the cloud bookkeeping software specifically for small businesses and the self-employed.