Year end checklists – what to consider

The accounting year end is an important point in the annual cycle of a company to finalise finances and tie up any loose ends to benefit from any available allowances or tax breaks.  Therefore, it’s important to consider the company’s, and your own position, well before the last day of the financial year.

Here are a few things we think you should consider:

Pensions

If you do not already have a pension, now may be a good time to consider one. Using your company to plan for your future is worth considering as payments towards a pension will reduce your corporation tax by 19%.  Although, we can’t advise on the best pension scheme available, we can of course let you know how much tax you could save and any impact on available dividends it may have.

A simple example is below: –

Company Profits £50,000
Corporation Tax £9,500
Dividends Available £40,500

If you decide to make a £5,000 one off pension contribution this will change to as follows: –

Company Profits £45,000
Corporation Tax £8,550
Dividends Available £36,450

Following the above example, if you’ve already taken £35,000 in dividends and do not intend to take any further, this situation is perfect.  However, if you do plan to take more, or have taken out £40,000 already, you won’t be able to make a pension payment due to insufficient profits.

Asset Purchases

Why does it matter when you purchase equipment for your business?

Basically, the timing of the actual purchase of the asset will directly affect the timing of the tax saving. For example, If your year end is 31st March 2018 and you purchase equipment costing £3,000 on the 28th March, it will reduce the Corporation Tax due on or before 31st December 2018.  However, if you incur the cost a few days later and after the year end, it will reduce the Corporation Tax due on or before 31st December 2019 – a whole year later!

Obviously, buying assets for the sake of reducing tax isn’t really efficient unless you are actually intending to buy them.  There is no point buying something you don’t need to simply reduce your tax by 19%.

Portal & Bank Statements

To even consider investing into a pension scheme or checking cashflow to allow a purchase of an asset, you will normally need to ensure the company accounts are up to date.

Things to consider:

  • Are all invoices entered to date?
  • Do you need to chase up payment of outstanding invoices?
  • Have you added in all your expenses?
  • What about mileage claims?

 

As in life, closing the stable door after the horse has bolted, couldn’t be more true when dealing with company finances.  Don’t leave it until the last minute to consider the above otherwise it will be too late!

Posted by Chris Gent