Accounting Crunch Time: When Should you Start Preparing End-of-Year Finances?

Do the terms end-of-year finances or taxes fill you with dread? It is a testing time for many companies as they frantically search under metaphorical couch cushions to unearth all of their receipts to ensure the taxman can’t find fault with their accounts.

It can be a stressful period as there is a hard deadline for companies to meet otherwise they face a fine for late or incorrect submissions, not to mention how long it takes to gather all of the relevant information.

As this is not just something companies should do but a legal requirement, the end-of-year finances must be approached comprehensively. While your accountant bears the burden of this, company directors must also have a sound understanding of what is required to make it a seamless process.

After all, your accountant will be doing end-of-year finances for all their clients so giving them as much accurate information as possible is essential for avoiding any penalty charges. So what can you do to make life easier and prepare yourself for this dreaded time?

Government guidelines

The end-of-year finance requirements refer to a 12-month fiscal period that typically coincides with the calendar year ending. However, some limited companies’ fiscal year begins in the month that they were registered. According to UK government guidelines, a private limited company must prepare full annual accounts (which are bound by law) and a Company Tax Return.

Failure to file your taxes within the allotted period bears penalties. HMRC will charge an instant £100 for late Company Tax Returns and failure to file will result in an estimated bill plus a 10% surcharge for the trouble. Companies House, on the other hand, can fine £150 for filing returns up to a month late, increasing to £1,500 for leaving it more than 6 months to file.

What are the essentials of financial reporting?

Typically, businesses and companies must file three types of tax, VAT, income tax and employee-related taxes. Companies can task their accountants with their financial reporting but it is still up to the business itself to keep good records. VAT, for example, must be sent to the government every three months through a VAT return.

Income tax is calculated at the end of the year based on profits, with limited companies currently paying 19% corporation tax but is due to increase to 25% in 2023. Finally, companies must withhold income tax from their employees’ pay, transferring it to HMRC. With three important tax types to consider, companies should be vigilant in their documentation and hire accountants 

When should companies start preparing?

In truth, companies should start preparing their financial records immediately. Making light work and staying on top of your admin throughout the year makes the final process much easier. The longer you leave it, the harder the task becomes until it snowballs into something that is a colossal task.

Ironing out the kinks in your financial recording process is also essential for any tax investigations you may find yourself at the heart of. Seek the advice of a financial advisor or accountant to point you in the right direction and ensure you are working from a strong base.

With HMRC conducting more and more tax investigations, even the most careful of managing directors and owners will come under the Inland Revenue’s microscope at some point. Getting a head start is essential for accurate records and a smooth end-of-year calculation.

An end-of-year accounting checklist

Whether you are on top of your records or not, it is useful as the financial end-of-year approaches that you create a plan of action – starting with a schedule that identifies all the important dates to ensure theyare not missed. Then it’s a case of gathering any outstanding invoices and receipts to ensure you can wrap up your returns.

Ensure that all of your employees understand what is required of them and create a timeline for them to set the record straight. Once you have the invoices and receipts in, it’s time to reconcile them against your records to identify anything that has been missed. Resolve the discrepancies, adjust any grants and entitlements and then square up any outstanding debts.

How companies can prepare for the process

The reason why many companies have to rush to complete their financial returns by the end of the year is due to the sheer volume of financial records they are expected to keep. Every receipt and invoice must be accounted for, and if any of this information is missing, from a client sale to an employee lunch allowance, it takes time to find.

Failing to leave a paper trail makes this task infinitely more difficult as accountants seek to reconcile the yearly ins and outs. Recording financial records regularly is the easiest way to ensure nothing is lost if you do your taxes manually.

Manual data entry is time-consuming and prone to errors so, adopting an integrated accounting software platform into your processes is a modern solution that is proving effective as tax is made digital.

One of the largest contributors to missing information is human error, with piles of paperwork becoming an overwhelming task. With more information to try and comprehend, mistakes are likely to occur, leading to potential queries from HMRC or costly fines for these errors.

Best practices throughout the year to make it easier

There is no denying that the pressures on businesses are increasing as global economic troubles are impacting their bottom lines. Every saving matters, so frittering away revenue on fines for misfiling your tax returns should be one of the first you look to make. Switching to a digital accounting platform makes keeping your financial records in check much easier.

But, regardless of whether your accounts are digital or not, it’s useful to document your financial records often and plan for hard deadlines well in advance. Create awareness among your employees for the records they need to keep and ensure that all payments are accounted for promptly to avoid delays as those deadlines approach.

Training is essential to ensure everyone knows their responsibility while it also helps reduce data entry errors, improve familiarity with accounting processes and promote a healthy reporting culture for receipts and invoices. Ultimately, hiring an effective accountant takes much of the technical troubles out of your hands but an organised approach to filing financial records throughout the year ensures your end-of-year tax headache becomes a thing of the past.