Our Managing Director Jane Braithwaite has written her top tips to help you prepare those all-important end-of-year accounts. 

All businesses must prepare end-of-year accounts, but the exact requirements vary depending on the business’s legal structure.

Sole traders and partnerships will need to prepare year-end accounts, often referred to as Trading accounts, to assess how much tax must be paid, but it is also good business practice to review your accounts throughout the year to assess opportunities for financial improvements to be made.

A private limited company must prepare full (‘statutory’) annual accounts and a company tax return, sometimes known as a Corporation Tax Computation. These accounts must be submitted within the deadlines specified by Companies House and HMRC.

Here are our top tips for helping you to prepare your year-end accounts.

Sole Trader accounts
You are required, by law, to prepare your accounts and submit your tax return by 31st January each year.
Specifically, you must keep your income and expenditure records and maintain these records for five years from each 31st January tax submission date. HMRC could request your records, and they must be ready if required.
The records you must keep are as follows: –

  • Business Income – all your income for the services you provide as a sole trader
  • Personal income – income you receive from other sources, for example, investments, dividends, Share disposals , pension payments and draw downs and buy-to-let properties. This income must also be declared and will affect the amount of tax you pay.
  • Expenditure – All payments you made during the year to run your business including any gift aid donations made
  • Payroll – If you employ staff, you will need a record of wages paid through the HMRC’s PAYE scheme.
  • VAT – In private healthcare, you are unlikely to need to worry about VAT, but this is important for businesses in other industry sectors.

Taxes
As a sole trader, there are three main forms of taxes as listed: –

  • Income tax on your net profit
  • Class 2 and Class 4 National Insurance contributions
  • VAT (if appropriate and if your turnover is more than the threshold for the tax year)

More about expenditure
Your expenditure has a significant impact on your profits which in turn affects the amount of tax you pay, and so it is very important to include all appropriate expenses. There is a very clear list of the allowable expenses on the HMRC website titled “Expenses if you are self-employed”.
You are permitted to claim a proportion of expenditure on items that relate to both personal and business, with the best example being your mobile phone costs. You can calculate the proportion of your usage which is business rather than personal and make a claim for the business-related amount.
If you work from home, you can also make a claim for associated expenses.
For any expenses that you claim, you must have receipts and you must maintain these for five years as proof for HMRC in case they request to see your accounts and evidence of expenditure.

Bank accounts
There is no requirement for a sole trader to have a separate bank account for their business transactions, but it is wise to do so for practical reasons. It is much easier to track your income and expenditure if it is all managed via a separate bank account. Sorting out your business expenses from your personal expenses is very time consuming if they are all mixed into one bank account.

At some point, you might also use a finance system such as Xero for managing your bookkeeping. These systems allow you to set up an automatic bank feed so that all your transactions are uploaded into the system, reducing manual data entry. This works well if you have a separate account for your business.

Limited Companies
If you are running a private limited company, at the end of each financial year, you must prepare full ‘statutory’ accounts and your Company Tax Return. Financial year-end reporting is a legal requirement to ensure your company pays the right amount of tax. But there is additional value as it shares vital information about your company with interested parties such as shareholders and banks. Producing your statutory accounts is also an invaluable way for you as a business owner to understand your day-to-day operational costs and all the other key aspects of your business’s finances.

Most businesses employ an accountant to prepare their yearend accounts and company tax return. However, it is still vital that the business owner and other key stakeholders have a very clear understanding of the accounts and the implications for the business.

Financial year
Your financial year can run at any time in the year and for most businesses, this will be set by the date your first launched your business. The UK tax year runs from April and many businesses adhere to this for ease, but there is no requirement to do so. Your financial year is usually the same as your accounting period for corporation tax. This is the period on which you need to report, these dates can be changed at Companies House if required

Statutory Annual Accounts
The purpose of your statutory accounts is to clearly describe your company’s financial activity in the year for tax purposes and to provide accurate information about your company’s financial performance. Your Statutory Accounts are the documents you send to Companies House.

The accounts will provide a summary, describing overall outgoings and income rather than detailing individual transactions. There are different types of accounts that can be submitted depending on turnover and balance sheet value but an example of the data required is shown in the following sections and it is important to note that the Statement of financial position and the Footnotes will be available publicly at Companies House for all to view.
• Income Statement – Profit or loss
• Statement of financial position – The value of your company, determined by your assets and liabilities.
• Director’s report – A statement from the board of directors
• Footnotes – Points for clarification
Company Tax Return
Your Company Tax Return (form CT600) is the document you send to HMRC. It contains details of your turnover, expenses, tax allowances, and profit in the form of the company’s Statutory Accounts. HMRC uses this information to calculate how much you owe in corporation tax, although if you have engaged an accountant, they will have given you an estimate already.

Timescales and deadlines
You must produce your accounts and tax return to meet the filing deadlines set by Companies House and HMRC. Your first set of accounts must be produced within 21 months of registering your business with Companies House. You may need to submit an additional tax return in year one. After year one you must produce your accounts and pay your tax due within 9 months of your financial year-end.
Penalties
Both HMRC and Companies House will charge you penalties if you are late submitting your accounts and tax returns and the penalties range from £ 150 to £ 15000 depending on how many months late you are. In the worst-case scenario, your company can be struck off so the deadlines must be taken seriously.
Other reporting responsibilities
There are other reporting responsibilities and whilst they are not technically part of year-end reporting, they can be done at the same time for convenience. These include your VAT returns (if the company is VAT-registered) and your Annual Confirmation Statement.
VAT returns
Most doctors working in private practice are not VAT registered, but VAT does apply to some companies working in the healthcare sector. If relevant, your VAT return will be due every quarter, this must be filed and paid by the 7th of the month following the end of the period ie: VAT quarter ends 31st January, submission and payment due 7th March
Confirmation Statement
By law, each year you must confirm your company information with Companies House. You must file the statement within 14 days of its due date, which is a year after your incorporation date, and then each year from now on. You must do this even for a dormant company, and failure to do this may be deemed a criminal offence.

Our top tips
Whether you established your practice as a sole trader or limited company, the key to making your year end accounts a simple task is by maintaining good records during the year. If you are using a good Practice Management System (PMS) you will have good records of income, payments received and aged debt. Make it a habit to do a monthly review of these figures so that you can identify any anomalies at the earliest stage. Keep a very close eye on aged debt and take action if it starts to build up.

To ensure you have an accurate record of your expenditure you must take bookkeeping seriously. To help motivate you, expenses reduce your profits which in turn reduces your tax liability so don’t miss anything out. Make it a habit to record all expenditure at the time the expense is incurred and keep copies of invoices and receipts. If you fail to do this, you will spend hours wading through bank statements and credit card statements at year end trying to remember what each payment was for and you will undoubtedly miss some expenses. Either use an excel spreadsheet or invest in a professional system such as Xero. To avoid building up paper files, that need to be stored in your office, scan your invoices and receipts into a folder and back this up.

Set up a separate bank account for your business transactions on day one.
If you employ staff, then you must maintain accurate payroll records. Failing to do so can lead to mistakes in tax and national insurance so check these records regularly. If your staff claim expenses, ensure they provide you with receipts for you to store securely.

As your business grows, look at ways to automate your bookkeeping as much as possible. Using Xero and automated bank feeds you can eliminate manual uploads which saves time and reduces error.

It is worth investing in expert help, by engaging an accountant to produce your year-end account, particularly if your practice is a limited company, but of course, there is a cost involved. Providing your accountant with good records will definitely save you money as their work will be so much easier and faster. Dumping a box full of receipts and invoices on your accountants desk will definitely cost you dearly. The professional advice your accountant provides you regarding tax will be valuable and give you piece of mind that you are going to avoid any problems with HMRC. And of course, you can claim the cost as an expense in your accounts!

Within Designated Medical we have a team of bookkeepers and accountants who manage billing, bookkeeping and accountancy on behalf of our clients. If you need any advice, please contact Vicky Garbett who heads up our accountancy team.

 

 

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