Introduction
Getting your company tax ready for the year end is key to compliance and avoiding penalties. This guide covers the basics like record keeping and tax calculations. Let’s make tax prep easy.
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Key Points
- Knowing the difference between financial and tax years is crucial for tax prep and compliance.
- Good record keeping, including income records, bank statements and VAT records is key to year end tax filing.
- Hiring an accountant can optimise tax strategies and ensure tax compliance, saving you money.
Your Company’s Financial Year End
The end of the financial year is a critical point for any business as it marks the end of one accounting period and the start of another. For limited companies this is the period from the date of incorporation at Companies House to the same date the following year. It’s during this time that companies need to prepare their annual accounts to meet the statutory requirements.
You need to distinguish between two periods: the company’s financial year and tax years. The former is the set accounting period and the latter is from April 6th to April 5th the following year.
Ending a financial year is more than just meeting the legal requirements. It gives stakeholders clarity on financial matters and accurate tax calculations. Knowing these deadlines allows your business to align its financial practices with the upcoming tax obligations and avoid any potential problems down the line.
Year-End Tax Documents
To make tax season stress-free, record-keeping is key. To complete company tax returns accurately and avoid last minute rushes, you need to have all the necessary documents in place. These include income, bank statements, supplier accounts and related invoices and receipts.
To get tax returns right, keeping paper and electronic records throughout the year is vital. With current bookkeeping and supporting documentation, mistakes when submitting tax returns can be minimised and stress reduced.
Now let’s look at what documents you need.
Bank Statements
Bank statements are crucial for tax obligations as they give a complete picture of all financial transactions. These records allow you to verify your income and record expenses accurately, so you get the documentation right.
Monitoring income and expenses through bank statements is key to calculating company profits which impacts corporation tax liability. If these figures are accurate, your annual accounts will accurately reflect your financial activity and meet the legal requirements.
Bookkeeping Records
Keeping bookkeeping records is critical for tax return preparation as they need to include income, expenses and any adjustments. You need to keep these records up to date so you can report financially quickly and accurately which is especially important at tax return time.
Kept bookkeeping means when it’s time to submit company tax returns all the information is to hand. This habit not only helps with tax compliance but also helps with financial decision making throughout the year.
VAT Records
If you’re VAT registered you need to keep VAT records. This is important not only for VAT compliance but to avoid penalties. Keeping records means documenting all the VAT you’ve received from sales and spent on purchases.
To submit the required VAT returns to HMRC you need to have these figures documented. This is a key part of preparing your company’s taxes at year end which helps with all tax obligations and avoids penalties.
Company Accounts
Preparing company accounts involves putting together various financial documents. A balance sheet shows a company’s total assets, liabilities and owners’ equity at the end of its financial year. An income statement is a summary of the organisation’s income, expenditure and profit or loss for that period.
Unless micro-entity status applies (which means they don’t have to do this) companies must produce directors’ reports. These narratives give a deeper insight into the performance of the business over time and its future direction. All statutory accounts must comply with either International Financial Reporting Standards or UK GAAP.
These statutory accounts are based on year end financial records for any given company. Sent to Companies House. To be shared with shareholders and HMRC with each entity’s tax return for corporation tax.
Accuracy in these filings is important not only for compliance with the law but also to maintain confidence among all parties involved in the business.
Calculating Corporation Tax
To work out how much corporation tax you owe, add up your total taxable profits which include adjusted accounting profits, other forms of profit and income and capital gains less any losses. To calculate the amount of company tax for a particular period subtract permitted expenses from all income earned.
The rate of corporation tax depends on how much profit your company makes. Companies with profits over £250,000 are in the 25% corporation tax band. There is a sliding scale of marginal relief for those with profits between £50,000 and £250,000 to reduce the effective tax rate. The small profits rate of 19% applies to companies that make no more than £50k profit. This affects both their overall corporation tax bill and what they pay.
Get this right when calculating your liability when preparing to pay your tax and file your returns to avoid penalties or assessments for unpaid tax due to errors in what you owe.
Filing Your Company Tax Return
When you submit your company tax return you need to complete the CT600 form with the company name, registration number and Unique Taxpayer Reference (UTR). The reportable period for this tax return cannot start before 1st April 2015.
Within the CT600 form there are sections to claim any tax reliefs and capital allowances and to disclose any avoidance schemes. You need to include your banking details so HMRC can process any repayments.
Make sure to be accurate and timely when submitting the CT600 form. This needs to be sent to HMRC and Companies House along with your statutory accounts as part of your reporting requirements for all company transactions.
Meeting Deadlines and Avoiding Fines
You must meet deadlines to avoid fines. You have 12 months from the end of your accounting period to file the corporation tax return. Corporation tax payments are earlier and not meeting these payment deadlines can result in penalties.
If you are late, initial penalties are £100 if you are just one day late. This increases to £500 if you are late for 3 consecutive years. Any outstanding tax is subject to a further 10% penalty if still outstanding 6 months later.
Keeping records accurate and on time is key to avoiding financial penalties and being compliant with your fiscal responsibilities.
Tax Reliefs and Allowances
Using tax reliefs and allowances can reduce your corporation tax bill. Donations to approved charities are deductible from profits so you pay less tax. Employee pension contributions are an allowable business expense that can reduce your taxable profits.
Investments through the Enterprise Investment Scheme give you significant tax relief and allow you to defer tax for up to 3 years. Businesses can carry forward losses into future years to reduce future taxable profit margins. By claiming R&D tax credits you can get up to 27% back on eligible expenditure on qualifying projects.
Getting an accountant can help you find and claim these deductions so you can refine your tax approach. By using these allowances wisely companies not only get more bang for their buck but also comply with the law by only paying what they owe in tax.
Additional Reporting
To standard tax returns there are extra reporting requirements. Companies registered for VAT must submit returns to HMRC of their sales and purchases to comply with VAT rules and avoid tax penalties.
Companies not trading or dormant must submit a Confirmation Statement to Companies House. Failing to do this can lead to criminal charges so it’s important to keep on top of these extra reporting requirements.
Year-End Tax Checklist
Before tax obligations, follow these steps:
- Get your financial records in order and check they are correct.
- Gather all the necessary paperwork which includes the CT600 form, company accounts and any other supporting documents.
- File your accounts with Companies House by the 9th month after your accounting period end.
By doing these tasks on time you will navigate year end tax responsibilities with ease and stay compliant and penalty free.
Hiring Professional Help
A professional accountant can be a valuable asset during year end tax preparation. They will provide bespoke advice, manage complex tax rules and file returns accurately. Their services will ensure compliance and accuracy, so you can focus on other important parts of your business.
Accountants play a crucial role in finding tax reliefs and deductions that you may otherwise miss. Hiring their expertise is a smart investment for businesses that want to get end of year tax obligations sorted.
Summary
In summary preparing for your company’s year end is a complex task that requires knowledge of your financial period, gathering of documents, keeping accounts precise, calculating tax liabilities and meeting all deadlines. Using tax reliefs and deductions can reduce the amount of tax owed. Seeking professional help can mean compliance and efficiency.
Following this guide will help you manage your year end tax duties and keep your business compliant and financially healthy. Start these preparations now for a stress free year end.How to calculate your corporation tax liability?
Subtract allowable expenses from your total income to get your taxable profits. Then apply the relevant tax rate to those profits.
This will give you a clear picture of your tax.
FAQs
What’s the difference between a financial year and a tax year?
A financial year is the company’s own accounting period and a tax year is the calendar year from 6th April to 5th April the following year.
Get this right and you’ll be on top of your finances and compliance.
What documents do I need to file a company tax return?
To file a company tax return you need bank statements, bookkeeping records, last year’s tax return, the CT600 form and company accounts with supporting documents.
Have these in order and it will make life easier.
How do I work out my corporation tax liability?
Work out your corporation tax liability by subtracting allowable expenses from total income to get taxable profits. Then apply the relevant tax rate to those profits.
You’ll have a clear picture of your tax obligations.
What are the penalties for late filing of a company tax return?
Late filing of a company tax return incurs penalties from £100 for one day late and £500 for three consecutive late filings.
Additional penalties for late payment.
Why should I get an accountant to do my year end tax?
Getting an accountant to do your year end tax provides expert advice and ensures accuracy and compliance so you can focus on other important business areas.
This will save you from costly mistakes and enhance your financial strategy.
