By Urchana Moudgil, COO of Upgrade Pack .
Ahead of the new tax year, what can startups do to ease the process of year-end reporting, and what are some considerations for those embarking on their startup journey.
Tip 1 – Take regular care of ‘The Big 3’
Regular housekeeping of your reconciliations, balance sheet and profit & loss account are fundamental tasks to make the year-end process a whole lot easier. Following good practices from the start will ensure your accounts are prepared to the best possible standards.
Reconciling your bankforms the foundation of your year-end accounts. By processing your bank and other transactions daily you’ll ensure your accounts are up to date and ready to be analysed shortly after the year closes.
The balance sheetis best analysed monthly as it captures all the daily transactions mentioned above. Review every category and reconcile it making sure you know every balance is correct. Confirm your sales invoices are guaranteed (credit control this as much as possible), your supplier accounts are accurate, and your government liabilities (PAYE, pension, VAT etc) are up to date as penalties can be incurred if these aren’t paid on time. Also ensure there are no outstanding Director’s Loans in the business as these are interest-bearing. It’s safe to say, if you balance sheet isn’t right, then your profit and loss account won’t be either.
When it comes to your profit and loss account, ensure every invoice is recorded, all business expenses are included and all your accounting adjustments have been made (accruals, prepayments, depreciation etc) in order to make an accurate assessment of your annual performance. Once you are happy with your year-end position, your Corporation Tax can be calculated.
Whether your startup needs to be audited (based on size) or not, following the above will put you in good stead for a quick and easy year end to audit standards. Use a comprehensive audit checklist (there are many online) so you don’t forget anything.
Tip 2– Plan for Corporation Tax
Once you have finalised your year-end accounts it’s time to prepare your tax return. Corporation Tax can be quite tricky, so having external tax advice is beneficial and will ensure you report your tax accurately and on time. You have nine months after submitting your year-end accounts to settle your tax bill for the previous year, and if you’ve had a loss-making year, you can carry forward the losses to offset against future profits.
It’s a government requirement that your annual accounts are filed electronically at Companies House each year. You need to prepare your accounts to the Companies House standard format and file by the deadline given. Whether you’re big enough to be audited or not, every company must submit their annual accounts (also known as statutory accounts) on time to avoid penalties.
Finally, if your business has just one member of staff, you must remember to file a full year-end payroll submission (Full Payment Submission) to confirm your payroll payments and contributions. You may have a payroll company who does this for you but if not, most accounting software systems are automatically linked to HMRC and will send the information over at the year-end. We use Xeroas it’s simple, user friendly and suits all levels in the business.
Tip 3 – Protect your cash balance throughout the year
Year-end triggers a big cash outflow for your Corporation Tax.
The term ‘Cash is King’ could not be truer when running a business. You can show a great profit for the year but that doesn’t mean you have cash in the bank to show liquidity.
A strict and tight daily cashflow statement will help you prepare for big annual payments like your Corporation Tax as well as payments for VAT, rent and business rates. Keep a track of your daily cash inflows, outflows and projected cash movements and ensure you have money put to one side for your larger liabilities. I roll cashflow forecasts forward by twelve months each day so I can plan and strategise my year; I can then monitor the peaks and troughs easily and make better informed operational decisions when presented with a potential outflow of cash.
Each month I transfer cash into a savings account to accrue over the year so our Corporation Tax bill doesn’t feel like a big hit. It’s good practice to have a minimum of three months payroll available at any one time as a buffer, but also plan some cash for those unexpected costs.
Whether you’re a startup or a long-established business cashflow should be forward-focused at all times to make the right investment decisions at the right time. If you’re fundraising this is essential as you have limited funds to work with until you’re revenue-generating.
The Government has some good incentives to help startups recoup cash, including itsResearch & Development (R&D) tax relief. Take time to consider whether you have a case for an R&D claim and submit this to the government in a timely manner to help top up your cashflow.
Tip 4 – Flex external support to your requirements
There’s a lot to think about when the finance year-end is looming. Not all startups have an in-house finance lead or resource to keep their accounts updated day to day. There are, however, great accountancy firms in the market who can provide anything from low-level support through to their full management services, to help keep you on track. You can have all your daily accounts managed or just your annual accounts produced and your Corporation Tax report submitted if you want to keep some of the control yourself. You can also ask your firm to look after all your Companies House secretarial needs and payroll requirements, so your filing submissions are made on time.
Finding the right advisors can help take the burden off and allows you to focus on growing your business.
Tip 5 – Keep momentum going
Once your year-end has finalised, it’s time to plan for the new financial year. Using the prior year’s accounts as a starting point, build a budget to focus on and drive your key milestones for the year, I tend to budget between 3% – 5% extra across my overheads to account for potential cost increases. It’s important to ensure your targets are realistic and achievable, but factor in some stretch to really help drive your business forward to another successful year-end.
Every successful business has a solid financial plan behind it to achieve its vision, so it’s important to spend time forming your new budget and then make sure you track against it throughout the year.
About the author
Urchana Moudgil is co-founder and COO of Upgrade Pack, a tech startup providing exclusive discounts on flight and hotel upgrades to innovative businesses as a loyalty reward for their most valued customers and employees. Prior to that she worked in senior finance roles ranging up to Finance Director in a number of companies.