Year-end accounts checklist for small businessesSmall Business Advice 11 February 2019
Unlike sole traders, limited companies are legally required to file their statutory year-end accounts with both HMRC and Companies House.
The reason for this is that, because the directors of limited companies are not personally liable for the debts of the company, all financial information must be transparent and made public for examination by anyone, from suppliers to investors and customers.
What are year-end accounts?
A year-end is the end of a business’s accounting year. So, year-end accounts are simply a summary of a business’s overall performance for an accounting year.
The end-of-year accounting process itself isn’t simple, or easy, because it involves drawing on many different sources of information to get an overall and accurate picture of your business.
Unlike sole traders, as a small business, you are legally required to file your year-end accounts with both HMRC and Companies House.
So, what are the legal requirements for year-end accounts?
Legally, you have to submit your year-end accounts to HMRC with your corporation tax return. These need to be submitted online at the same time as your tax return – within 12 months of the end of your company’s financial year. They are used as the basis of your tax calculations, so HMRC can ensure you’ve calculated the correct amount.
Other legal obligations include keeping detailed accounting records and filing year-end accounts with Companies House and. The latter must be submitted within nine months of the end of your company’s financial year.
What do I need to include in my statutory year-end accounts?
Full year-end accounts, as opposed to abbreviated year-end accounts (we’ll come to them later) include the following:
Usually, your year-end accounts should contain a directors’ report. This is a document written by the company directors, summarising the business’ performance over the year with their views of its current position and how they think it will perform in the future.
This gives details of the company’s assets and liabilities at the end of the accounting period.
Profit and loss (P&L)
The P&L account gives a summary of income and expenses and gives the the total amount of profit or loss over the accounting period.
This is a commentary and explanation on the details of the profit and loss account and balance sheet.
HMRC or any shareholders you have, require full year-end accounts.
However, if your business fulfills two of the following, you only need to submit abbreviated year-end accounts to Companies House:
* has under 50 employees
* turnover is less than £10.2m
* you have less than £5.1m on your balance sheet, then.
What are abbreviated year-end accounts? As the name suggests, they consist of nothing more than a balance sheet, signed by one named director.
What accounting records do I need for my year-end accounts?
These days, given the complexity of accounting, it makes sense to involve an accountant. It also makes sense to cut down on fees by doing as much basic work yourself, possibly with the help of accounting software.
Legally, you need to keep a number of ongoing accounting records. As a small business, this should include the following:
Income and expenditure records
This should include receipts for all sales and purchases, cheque books, and up-to-date bank statements.
In addition, list your outstanding debtors at year-end. To do that, list all sales that haven’t been paid for and If you’re pretty certain invoices won’t be paid, mark them as a potential bad debt. Explain why to your accountant who may then write it off as a ‘bad’ or ‘doubtful’ debt. This means it could count as an allowable business expense.
Finally, list all your creditors in date order, with the oldest first. This will help you decide which creditors are more important and when to pay them.
Unsold stock and uncompleted work at year-end (‘floating’ assets)
If you are a service business, you may have work in progress that can’t be counted as a fixed asset.
However, if you deal in physical goods, you’ll have to do a physical stocktake, which everyone dreads, but has to do, at least once a year. Plan for it in a less busy period when no new stock comes in. To speed things up, first pre-sort the same type of stock together, so it is easier to count. For uniformity and speed, make sure you have standard stocktaking procedures in writing.
After the stocktake, work out total value of your stock. Old, or damaged goods should have a depreciation value recorded. To work that out, check them against the original prices you paid.
To calculate the value of unfinished projects, use time records to work out how far along you are in percentage terms. So if a project is 50% complete, assign 50% of the value of the project in your accounts as incompleted work.
A register of fixed assets
Fixed assets are physical or concrete assets your business owns, like IT equipment, premises and vehicles.
To ensure that records of your fixed assets are up-to-date, draw up a list. This should include: descriptions and locations of items; dates they were bought, together with prices and a record of assets disposed of or sold in the previous year. Make sure to keep receipts and invoices in a safe place.
In addition, use an online calculator to estimate how much your fixed assets have depreciated in value over the past year, and reduce the value to your business.
A record of company liabilities
Make sure that records of any debts or investments you have, are up-to-date and accurate.
Any debts or investments that extend past the current year-end are called long-term liabilities. They can be finance-related or operational.
Financing liabilities are debt obligations produced when a business raises cash and include convertible bonds, bonds payable and notes payable.
Operating liabilities are obligations a business incurs in the course of its normal business operations. They include capital lease obligations and post-retirement benefit obligations to employees.
Staff payroll information
HMRC pays particular attention to payroll and expenses matters. So, ask your accountant to check that all calculations for PAYE and NI are correct. If they’re not, your business is liable – not the employee.
When it comes to expenses, use a standard expenses claim form and insist that employees attach all receipts.
What happens if I miss the deadlines?
Both HMRC and Companies House impose fines if you miss deadlines. They increase with time, so make sure you plan ahead and file on time.
What other reporting duties do I have?
There are two other reporting duties that are not technically part of year-end reporting, but for the sake of convenience, can be done at the same time.
If the company is VAT-registered, they are: VAT returns and company Confirmation Statement.
If you need to submit one, your VAT return will probably be due at your financial year-end, so it makes sense to do it at the same time.
By law you have to confirm your company information with Companies House annually. You must file the statement within 14 days of its due date, which is either: a year after your incorporation date, or the date of the previous statement. You have to do this even for a dormant company.
Though it may seem like a lot of work, keeping your accounts precise and up-to-date could save you a lot of headaches, costs and potential legal trouble in the future. It will also help you to manage your business more efficiently and effectively.