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Small Businesses Year-End Accounting Checklist

The end of the financial year can be stressful for small business owners, but our year-end accounting checklist will help you transition smoothly into the 2021/2022 tax year.

Create a budget - What does this mean?

Your budget is simply an estimate of future expenses and income for any given period. It’s a good idea to break it down into smaller, more manageable chunks; you could divide it quarterly, or even monthly, as well as between departments. It’s also worth sharing your budget with key members of the team, especially those working closely with the funding for certain areas of your company.

Consider how you allocate budget across your company. Set aside individual pots for key areas such as sales, marketing, talent and tech, whilst remembering the basics such as business insurance or regular operating costs.

Finally, compare the budget you set this time last year with this year’s actual expenses and income. How accurate were you? If you were considerably off the mark, there may have been an anomaly that makes it worthwhile rethinking your budget. 

Take an inventory

This one’s pretty straightforward. If you sell products of any kind, counting your inventory enables you to identify discrepancies on your balance sheet.

In fact, counting inventory need not be limited to products you sell, but can also include your supplies and assets. Remember, to keep track of broken or missing items. This can all factor back into your budget if you need to replace anything over the course of the next financial year.

Strategise around tax

Tax planning at the end of the financial year gives you an advance opportunity to position some of your transactions in order to save your business money on tax.

There are numerous ways to achieve this, such as income splitting or maximising your company’s depreciation claims. You could also expedite expenses you had initially intended for early in the next financial year, such as software subscriptions due for renewal. Or defer invoicing customers until after the end of the financial year. By increasing your expenses, these strategies ultimately serve to lower your taxable income.

More complex strategies can be employed to save on tax, but you may require the assistance of a tax accountant in order to get the most out of these. Accounting software can be very helpful if you intend to seek professional assistance from an accountant. Such software will streamline the process by giving you a clearer view of your finances whilst enabling the accountant to access your online records directly.

Set goals and objectives

By this point in your checklist, you should have attained a far more comprehensive view on the financial health of your company. This, in turn, will allow you to start thinking about the future — although a quick look back into the past can be helpful also.

Consider last year’s goals. Did you achieve them? If yes, then to what extent? If not, what challenges and obstacles prevented you from doing so?

Setting goals is a vital part of growing any business. Having regular and realistic targets to hit will keep both you and your workforce motivated, focused and confident. Ensure your goals are well defined.

No matter how short- or long-term your goals are, as long as they’re in line with your overall business objectives then you’re sure to continue moving in the right direction.

Reflect on the business as a whole

As a diligent, hard-working small business owner, you can easily find yourself so caught up in daily operations meaning that you may begin losing sight of the bigger picture. When you seem to be spending every waking moment replying to emails, negotiating deals, speaking with clients, fulfilling orders and keeping up morale, it’s understandable to feel there’s simply no time to take a moment and reflect on a higher level.

The truth is, though, you need to find that time — otherwise, your business could plateau. These periods of reflection are as crucial to the prosperity of your company as the nitty-gritty day-to-day tasks, so make sure you allot some time once a month, once a week even, to sit down either alone or with senior management to work out how to keep the business on track with its growth trajectory so that it is able to meet its goals.

Get on top of your finances today

Year-end is the perfect time to reflect on your business. Your company is another year older and (hopefully!) another year wiser. Following a year-end accounting checklist will not only make sure your finances are in order for the new financial year, but also encourage you to step back from the business and take a broader, more objective perspective on how you are doing and where you are heading.

Important information to be aware of:-

Utilise dividend/interest nil rate bands effectively
For 2020/21 the first £2,000 of dividend income for any UK taxpayer is tax free. While this amount is still included within your taxable income, no Income Tax is charged. If your spouse/civil partner is not using their dividend allowance you may wish to consider transferring some shares to benefit from this (this could save a higher rate taxpayer up to £650 tax per annum).  A similar relief exists with Basic Rate taxpayers being able to receive up to £1,000 Income Tax per annum. This is reduced to £500 for Higher Rate taxpayers.  Additional Rate taxpayers are not entitled to this relief.  Spouses/civil partners can take action to ensure that these reliefs are maximised.

IHT (Inheritance Tax)
There is an annual exemption for IHT purposes of £3,000 each year.  If the prior year’s annual exemption for IHT was not fully utilised, any unused amount can be carried forward for up to one year.  Assuming the allowance for 2019/20 was not used, it means that £6,000 can be gifted away during 2020/21 free from any IHT charge.

Tax efficient investments
Investments into EIS, SEIS and VCTs can received very favourable income tax and CGT advantages.  If the investments are held for the requisite period of time, any capital gains on these investments are also free from CGT charge.  There is also the potential to defer any CGT arising on any other assets realised in the year of a qualifying investment.  These forms of tax efficient investments have annual limits in terms of the income tax relief that can be obtained each tax year: EIS £1,000,000 (with 30% income tax relief); SEIS £200,000 (with 50% income relief); and VCT £200,000 (with 30% income tax relief).

With regards to pensions and investments, advice should always be taken from an appropriately qualified professional who is regulated by the FCA.


 

We work on a very bespoke basis with our clients, in the past couple of months, we have been actively reaching out to our clients to prepare them for the end of their tax year however, the above information should act as a clear guide if you are not yet working with an accountant.

For further tax planning advice, please get in touch.

Disclaimer: The information contained in this article is intended to be a guide and is not intended to be exhaustive. No action should be taken on the basis of information contained herein without obtaining the necessary advice. No responsibility can be accepted for loss or damages occasioned to any person acting or refraining from acting as a result of the material contained herein.