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Are you ready for financial year-end?

Are you ready for financial year-end?

As April moves closer, many heating engineers and plumbers who trade as a limited company will be turning their attentions to the business finances to get ready for year-end. Lee Murphy looks at how you can make sure you’re ready. 

This year there is the added pressure of the Making Tax Digital (MTD) programme, which effectively pushes most small businesses to adapt to the digital age by mandating them to use HMRC approved software to file VAT returns.

So, if you are one of the many still using paper or Excel, the MTD switch will involve a shift onto up-to-date software. You will be amazed at how intuitive and time-saving current bookkeeping software can be, especially that designed for self-employed and microbusiness owners.

If you have left everything to the last minute, with so much to do before April and a thriving business to run, it may be worthwhile calling in an accountant to help you finalise the books. That said, there is much you can do to cover the basics which will save you money. 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 are some tips to help you get ready for the end of the financial year.

Round off 2018/19 to you can start the new year as you mean to continue
If you are organised at the year-end, it will set the foundations for a strong 2019/20. Now is the time to start chasing down late payers to minimise the money you are owed while making sure you are not building up your own debts, especially future tax liability, through having too many spending commitments.

If you don’t have one, make a cashflow forecast to track what is coming in and out of your company account to 5 April, and then use this for planning the coming year.  This will help you to be are clear about how much money you have in the bank in the months ahead. This key piece of information will mean you are in the right position to make business spending decisions over the next year.

It’s worth remembering that many businesses go under because they don’t have enough cash in the bank to fund future jobs, although overall the business is profitable.

Many large businesses have April financial year-ends and have budgets they want to spend before they disappear. It is a good time to make a few sales calls to any customers who may be under pressure to make budgets disappear.  It’s not unknown for some businesses to even agree to pay in advance just to use up money before their budget disappears.

Making Tax Digital and what it means for you
From April, all businesses above the VAT threshold of £85,000 will be required to submit their 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 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.

Get ready for the taxman
If you have not already done so, pull together all the paperwork your accountant will need to submit your company accounts.

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.

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

Making use of bookkeeping software, even free software, will help you save time by being be organised. For instance, most modern 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 all employees who were working on the final day of the tax year (5 April) with P60s. This document summarises their pay and deductions for the year. Remember, your employees need to receive them by 31 May.

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 (www.pandle.com), the cloud bookkeeping software specifically for small businesses and the self-employed.

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