The value of interim accounts

Many business readers of this blog will have their accounting year end set to coincide with the tax year end. For convenience, the end of March. As we approach the end of the calendar year you might want to consider the value of an interim review of your accounts to see what planning strategies are available to you. For example:

 

  1. Keeping your bank informed: If your business is constantly pushing towards the top end of its overdraft or loan facilities your bank manager will be much more sympathetic to your requests for more support if you can provide up-to-date accounts.
  2. Buying new plant, equipment or vehicles: The tax allowances you can claim for capital purchases can vary significantly. The date on which you buy, the specification of the vehicle or equipment. Well worth taking professional tax advice before you make any significant investment in this area.
  3. Paying yourself: The options you have available to minimise tax and National Insurance on any income you draw from your business depends on the type of business structure you have opted to work with. Self-employed traders will pay tax on their profits regardless of the amount of cash they withdraw for personal needs; directors and shareholders of Limited Companies will pay tax on the amount of salary or dividends they take. Dividends, however, do not attract a National Insurance charge. Each business offers its own opportunities to minimise state deductions and maximise take home pay. You should certainly take advice prior to your year end to make sure you choose the right strategy. Waiting until after the year end will likely close down beneficial options.
  4. Reduced profits reduced tax payments: If you are self employed you will be making tax payments on account for the current tax year in January and July each year. These payments are always estimated and based on the amount of profit you made in the previous tax year. Another reason to estimate your current year’s profits, before the end of your trading year, is that you can elect to have the payments on account reduced if current year’s profit is lower than the previous year.
  5. Dividends and available reserves: When accountants talk about reserves they mean accumulated profits from past and current year’s trading after corporation tax has been paid. When you take a dividend payment you are actually drawing on, and reducing these reserves. It is illegal to take or vote a dividend if you have insufficient reserves to cover it. Keeping an eye on your accounts is therefore essential and at minimum you should be preparing draft or interim accounts at least once before the end of your trading year.

 

Whether you divert your own time and energy or ask your accountant to do the work for you it is wise to see the financial cost of producing interim accounts as an investment. It should be possible to identify the benefits of the process so that you can make an objective choice. Time will rob you of the planning opportunities discussed in this article, and there are many more. Don’t wait until after your year end to discover what might have been, the horse is still safely locked in the stable…