Businesses need to stay organised and on top of their finances. As the end of the year approaches, it's a good idea to conduct a final accounting check to ensure that your business is in good standing.
Closing your accounts for the year end can be extremely stressful due to looming deadlines, time-consuming tasks, missing receipts, errors, reconciliation, verification and many other tasks.
This checklist can help you review and organise your financial records, prepare for tax season, and make necessary adjustments to your business's accounting processes. By following these steps, you can help ensure your business is set up for financial success in the new year.
Table of content
- What is reconciliation?
- Reviewing accounts
- Closing year-end accounts
- Submit company tax return
- File a confirmation statement
- Submit your VAT
It is important to stay organised all year round, however, the day-to-day management of your business can take you away from boring finance tasks. Staying on top of your financial affairs means reviewing and organising your financial records, reconciling bank statements, and ensuring all transactions are properly recorded and accounted for.
What is reconciliation?
Reconciling is the process where two sets of data are compared to check that data agrees. For example, compare your physical closing balance bank statement figure with the figure on your accounting software.
Why is reconciliation is important?
Reconciling your account is an integral part of any accounting process and it is done to ensure there are no balance sheet errors. A balance sheet is a snapshot of the financial health of the business and is used by investors, lenders, HMRC and companies house to assess a business's financial health for various purposes.
A monthly, if not weekly reconciliation is extremely important especially if you have a high volume of transactions. If your balances don't match this can usually indicate that accounts are not complete, there is an error or even worse, fraud.
How to reconcile?
The chances of your bank counting your money wrong are incredibly small therefore the bank statement is used as your starting point. You start by comparing the closing balance on the bank statement to the figure on your accounting system.
Any transactions that are on your bank statement but not on your records should be added and any transactions which are on your records but not on your bank should be investigated. Often you may have paid for something but not yet recorded the expense, or you have recorded a cheque which has not yet been cashed. Sometimes you will find errors in your records such as omission, duplication, reversal of entries, transposition and many others which would need correcting.
Once you reconcile your bank and general ledger accounts, you can be somewhat confident that your accounts are consistent and accurate, however, errors in other areas may still occur.
Verification of transactions
It's important to verify that all transactions are properly accounted for and comply with HMRC’s rules and regulations. It is useful to review expenses and ensure that you have all supporting documentation for relevant transactions in the event of an audit or a request for extra information from HMRC.
Certain expenses have rules attached to them for example employees using their car for business travel can expense 45p per mile for the first 10,000 miles and 25p per mile for any subsequent miles. Also, annual parties, trivial employee benefits, business entertainment and other expenses will have HMRC guidance which needs extra consideration.
Make sure that all transactions have corresponding invoices attached to them. You should keep your records for 6 years after the end of the accounting period in question in the event HMRC requests this information.
Reviewing accounts is important to ensure that the financial statement for the year accurately reflects the financial position of the company.
How to review accounts?
Make sure that all transactions for the year have been recorded properly and that the balances in the various accounts are correct. You can do this by conducting multiple checks such as a trial balance, which helps to find any errors in the accounts.
Furthermore, you can manually check asset accounts and expenses to make sure that capital expenditure and revenue expenditure is categorised correctly as this will impact financial statements and capital gains computation.
One way to review is to look at your accounts receivable to ensure that all sales made are paid on time. The longer an invoice remains unpaid the chances of it getting paid significantly reduced, resulting in a bad debt which reduces your profit.
Accounts payable show what debts are due and the amount. It is important to maintain good relationships with suppliers for continued supply and favourable terms. Paying late can upset suppliers and lead to interest charged on outstanding balances.
To avoid bad debts or ruining your supplier relations, it's useful to review your aged debtor (receivables) and creditor (payables) reports.
What are aged reports?
Aged reports show how long it takes for revenue to be collected or expenses to be paid.
An aged debtor report tells you how much money you are owed by your customers. It will be grouped by the length of time the debt has been outstanding. Categories will include debts outstanding currently and ageing 30 days, 60 days, 90 days and more. Having such a report will help you visualise how many customers haven't paid you and who needs chasing.
An aged creditor report will show you the money you owe and how old is the debt similar to an aged debtor’s report. It allows you to settle any old debt and avoid fees for late-payments and maintain relationships with suppliers.
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Closing year-end accounts
At the end of every fiscal year, financial accounts must be closed for financial reporting. Closing accounts is important as you need to inform the relevant stakeholders of your businesses performance.
What is the accounting period?
An accounting period is a time for which your business is assessed for corporate tax. An accounting period can't exceed 12 months but can be shorter, where the accounting period is longer than 12 months you must file 2 corporate tax returns.
Your accounting year-end will usually be 12 months but it doesn't have to be January to December or April to March however for convenince it can be easier to coincide with the calendar year or the financial year.
Finalise financial statements
A limited company must prepare and submit to Companies House each year. The size of your business will determine the requirements placed on your business and what you are exempt from.
Small companies must submit a profit and loss, a balance sheet, notes to accounts and a directors report. Micro entities on the other hand are exempt from submitting a directors report.
Profit and Loss (Income) Statement
A profit and loss statement, also known as an income statement shows the company’s sales, expenses and the profit or loss it has made over the financial year.
This might be used by lenders to assess your financial health, the government to see how much tax you pay or investors to assess if the business is profitable and if profitability improved.
Cash flow statement
Cash flow statements provide a detailed summary of the company's cash flow over some time. It shows how much cash flowed in and out of the business from various activities.
A cash flow statement is not required by HMRC however you may have an internal process of completing a cash flow statement to track and budget your spending.
A balance sheet shows the value of everything the company owns, owes and is owed at a specific point in time. It is a snapshot of the end of a business accounting period. This is a requirement from HMRC for micro entities and small companies.
Depending on what stage your company is at the deadlines would be slightly different.
Key deadlines for filing accounts
For your first set of accounts, the deadline is 21 months from the date of incorporation or 3 months from the year-end, which ever is longer.
For the subsequent set of accounts, the deadline for filing is 9 months after the accounting reference date year-end).
If a company shortens its accounting period, the new filing deadline is 9 months post the year-end or 3 months from the receipt of the notice to shorten (form AA01).
Deadline for your corporate tax return
The deadline for your tax return is 12 months after the end of your accounting period.
Corporate tax payment deadline
You must pay your corporate tax no later than 9 months and a day from the end of the accounting period.
Penalties for late filing
It is a legal requirement to file your accounts, failure to do so will result in a penalty. See the penalties listed below for late filing depending on the length of time a private company is delayed.
- if you are late by no more than a month, a penalty of £150 will be applied
- if late between a month and 3 months, a penalty of £375 will be applied
- if late between 3 and 6 months a penalty of £750 will be applied
- if late by more than 6 months, a penalty of £1,500 will be applied
File confirmation statement
A confirmation statement confirms whether information such as the office address, company directors, company's SIC code, share capital and shareholders is correct.
It is a legal requirement to file an annual confirmation statement (previously known as an annual return) every 12 months.
How to file your confirmation statement with companies house
You can file a confirmation statement on companies house if your private company has one shareholder, between 1 and 5 officers and less than 5 persons with significant control (PSC). Otherwise, you will have to use the Webfiling service.
Submitting a Company Tax Return
You must file a company tax return after each accounting year-end so HMRC can calculate tax liability.
Filling a tax return involves filing out the CT600 that can be found on companies house, and submitting it within the designated time frame.
What is a CT600 form?
A CT600 form collects information about your turnover, any income received, chargeable gains and allowable losses, profit, any reliefs and finally the calculation for corporation tax.
The CT600 form's due date is after the deadline for corporate tax payment therefore you need to know your corporate tax before the return form is due.
How to submit a CT600 form?
You can file your tax return online or via post. When submitting your company tax return you will need your Government Gateway login details and your company accounts.
Late filing penalties
HMRC will charge you the following fees for late filing:
- £100 for filing 1 day late
- £100 for filing 3 months late
- 10% of unpaid tax estimate for 6 months late
- 10% of the unpaid tax for 12 months late
- £500 instead of £100 if you are late more than 3 times in a row
HMRC will consider an appeal if you have a reasonable excuse such as the death of a relative, illness or others.
If you are VAT registered, and even if you have no VAT to claim or pay, you will have the additional burden of submitting a VAT return every 3 months. Each quarter is termed as an accounting period for VAT purposes.
The deadline for submitting and paying your VAT return is a month and 7 days after the accounting period. If your VAT accounting period ends 31st of December 2022, you must pay your VAT by the 7th of February 2023.
In conclusion, business owners need to prioritise their year-end accounting tasks to ensure that their financial records are in order and to meet important deadlines. This includes tasks such as reconciling accounts, reviewing and adjusting budgets, and preparing and filing tax returns.
By following a thorough year-end accounting checklist, business owners can ensure that their business is in good financial standing and is well-positioned for success in the coming year.