Completing year-end accounts for a limited company can be a challenging process full of deadlines and penalties if not done properly. Having an organized checklist is essential to stay on track and avoid potential issues with HMRC and Companies House filings. This comprehensive guide covers everything business owners need to know to successfully close out their accounting year and remain compliant.
What Does a Company Year-End Mean? 📆
A company’s financial year-end, also known as its “accounting reference date,” refers to the end of its fiscal year or accounting period. The year-end is when all financial transactions and activity must be recorded and accounted for. It’s a cutoff date for determining profit and loss over the past financial year and ensuring all recorded transactions are accurately reflected in the financial statements. The annual accounts provide stakeholders with an in-depth view of the company’s financial performance and position.
The year-end closing process transitions temporary accounts used during the company’s fiscal year to permanent accounts that carry over to the next accounting period through adjusting journal entries. This allows the books to be closed out and financial statements prepared for filing and tax purposes.
What is a Year-End Journal Entry? 🧾
Year-end journal entries are adjustments made to transfer income and expense amounts from temporary accounts to permanent ones before closing the books. This step is important as it marks the end of the accounting period, ensuring that all financial activities are accurately reflected in the company’s financial statements.
Some common examples include:
- Accruals: Recognize expenses incurred but not yet paid to match expenses to the period in which they were incurred.
- Prepayments: Account for payments made in advance for goods or services not yet received.
- Depreciation: Allocate the cost of fixed assets over their useful lives through the fiscal year.
- Bad Debt Write-Offs: Account for accounts receivable that are determined to be uncollectible based on an aging analysis of past due customer invoices.
Making these and other closing entries ensures expenses and revenues are matched to the proper accounting period and the financial statements accurately reflect the company’s financial position and business performance. This provides a true picture of profitability.
Best Practices for Year-End Accounting 🏆
Following best practices can help streamline the end-of-year accounting process:
- Review Account Balances: Analyze general ledger accounts to identify potential issues or adjustments needed such as unreconciled variances or improper cutoffs.
- Perform Reconciliation: Match bank and credit card statements, and creditors to entries in the accounting system to identify any discrepancies and ensure activity is properly recorded. A detailed review of bank statements, invoices, and receipts is particularly important. Specifically, reconciling all bank accounts is essential to confirm that the cash balances in the company’s books accurately reflect the actual cash available as per the bank statements.
- Record Accruals and Deferrals: Recognize expenses that have been incurred but not yet paid at the end of the financial year with accrual journal entries. Similarly, account for unrecorded revenues earned in the current year.
- Count Inventory: A thorough physical inventory count is essential at year-end. This involves performing a physical count of inventory on hand and comparing the totals to the balances in the company’s accounting records, making adjustments as needed.
- Update Fixed Asset Schedules: Review depreciation, disposals, or purchases of fixed assets over the past fiscal year and adjust the depreciation schedules accordingly.
- Confirm Tax Amounts: Calculate income tax expense for the year and determine the outstanding tax liability based on taxable income, deductions, and applicable tax allowances.
- Backup Data: Securely back up the accounting system and key financial records either internally or using a cloud-based service.
Why is a Year-End Accounting Checklist Such a Big Deal? ✅
Having a solid checklist and following it closely prevents companies from missing critical deadlines or neglecting key accounting and compliance tasks that must be completed. It also reduces the likelihood of manual errors that could result in misstated or incomplete financial reports. The structured year-end accounting checklist provides an organized workflow for the finance team to ensure all aspects of the closing process are covered without panicking or duplicating work. By designating specific cutoffs, reconciliations, adjustments, financial reporting, and filings well in advance, the year-end can be executed seamlessly.
Filing of Company Accounts and Tax Returns Deadlines ⏳
For limited companies, meeting filing deadlines with HMRC for tax returns and Companies House for statutory accounts is critical. Failure to file on time can lead to penalties. Two key agencies impose important year-end deadlines:
HMRC: What Needs to Be Filed 🗃️
Companies must file annual accounts and the company tax return with HMRC within 12 months of the fiscal year-end. The specifics of HMRC’s filing requirements include:
- Statutory Accounts (aka Annual Accounts): Must be filed along with the company tax return within 12 months of the year-end. For example, for a company with a 31 March year-end, the accounts for the year ending 31 March 2023 would be due by 31 March 2024. The statutory accounts submitted to HMRC include the balance sheet, profit and loss statement, notes to the accounts, and directors’ reports. These accounts give a view of the financial performance and financial position of the company. Care must be taken to ensure the accounts are complete and accurate before filing.
- Company Tax Return: The corporation tax return, officially the CT600 form, is also due to HMRC within 12 months of the financial year-end. This tax return includes the calculation of the final corporation tax liability owed by the company for the fiscal year reported, based on the taxable income and any deductions or credits. It’s important to accurately calculate this to determine the correct corporation tax bill, ensuring that the company pays the right amount of tax and avoids potential penalties or audits. Supporting accounts must also be included, so the tax return cannot be submitted until after the annual statutory accounts have been prepared. Proper calculation of the tax liability is critical to avoid subsequent audits or penalties.
Companies House: What Needs to Be Filed 🏢
In addition to HMRC filings, limited companies must file their annual statutory accounts and reports with Companies House every year. The deadline for these filings is within 9 months of the financial year-end date. For example, for a company with a year-end of 31 December 2023, the accounts must be completed and submitted by 30 September 2024. Companies House may assess automatic late filing penalties if accounts are submitted after the deadline.
Your Ultimate Year-End Accounting Checklist 📋
Follow this comprehensive checklist to ensure your year-end process goes smoothly:
- Determine a Target Closing Date: Decide on a cutoff date for processing transactions, usually 2-4 weeks before the actual fiscal year-end, to provide enough time for adjustments, account analysis, reconciliations, and financial statement preparation.
- Establish a Clear Workflow Process for the Staff Involved in Closing Out Financial Data: Put together a schedule of tasks and procedures for the closing process and assign owners and deadlines. Communicate expectations and responsibilities clearly to involved finance team members.
- Organize and Prioritize the Payment of Invoices: Pay down accounts payable balances to reduce liabilities. Prioritize paying older invoices first as well as large amounts. Offer payment plans to vendors if cash flow is tight. Avoid potentially hefty fines and penalties by submitting filings on time and accurately.
- Ensure that Your Receivables Records Are Accurate: Reconcile open customer invoices against accounts receivable balances and send statements for any unpaid invoices or past due bills. Follow up with customers by phone or email on any disputed or outstanding invoices.
- Review All Suppliers and Close Out All Outstanding Accounts Payable: Contact vendors to pay or write off any accounts payable that are very aged. This cleans up the balance sheet by removing old liabilities that may not need to be paid.
- Prepare an End-of-Year Balance Sheet and Income Statements: Draft preliminary financial statements before any closing adjustments are made. Review for reasonableness and identify any gaps that need to be addressed.
- Review Your Monthly Subscriptions: Evaluate recurring monthly expenses for unused subscriptions or services that can be canceled to reduce costs going into the new year.
- Establish the New Fiscal Year’s Budget: Use year-end revenue and expense totals as a baseline for planning budgets and forecasts for the new fiscal period. Build in growth assumptions as needed.
- Take a Backup of All Financial Information: Securely backup your accounting system and copy key financial records either internally or using a cloud-based backup service. Organize statements, invoices, and receipts for future reference in case of an HMRC audit. Once the filing is completed, it’s beneficial to review and archive these documents systematically, ensuring that everything is in order for easy access and reference in the future.
The Main Challenges in the Year-End Accounting Process 🔍
The end-of-year accounting comes with its difficulties, including:
Lack of Cooperation from Staff Unmotivated to Take on Extra Work:
Closing procedures take a stressful time and can seem tedious for employees.
Time Constraints to Meet Deadlines:
Closing the books must happen quickly at year-end, which can mean long hours for finance staff.
Pressure to Close Books Accurately:
Mistakes could lead to rework or regulatory issues if not caught.
Delayed Customer Payments Affecting Cash Flow:
Customers paying invoices slower than usual strain cash balances.
Disorganization and Improper Filing of All Your Paperwork:
Years’ worth of physical records may be unorganized and misplaced.
Manual Data Entry Errors in Making Closing Adjustments:
Mistakes can happen when making so many adjusting journal entries.
Lack of cooperation from staff unmotivated to take on extra work:
Closing procedures take a stressful time and can seem tedious for employees.
Proper planning, organization, and controls will help overcome these obstacles that commonly arise during the hectic year-end closing period.
What if I miss the deadlines?
Missing submission deadlines can lead to financial penalties from both HMRC and Companies House. The specific consequences include:
Penalties for late filing issued by HMRC
HMRC may assess the following penalties if returns are filed late:
- £100 automatic penalty if up to 3 months late.
- An additional £100 if over 3 months but less than 6 months late.
- Further £300 penalty if over 6 months late.
- Interest charges begin accruing on any late-paid taxes.
These penalties apply separately for both the annual accounts and the company tax return if they are submitted past the deadlines. HMRC charges interest on late paid taxes as an additional penalty calculated from the original due date. These penalties and interest on unpaid tax underline the importance of timely compliance, especially considering the dual requirements of both HMRC and Companies House for limited companies.
Penalties for late filing issued by Companies House
Missing the Companies House deadline for filing annual accounts involves the following civil penalties:
- £150 automatic penalty if up to 1 month late.
- An additional £375 is charged if between 1 and 3 months late.
- Further £375 penalty if accounts are between 3 and 6 months late.
- Increased daily penalties apply for accounts filed more than 6 months late.
Companies House penalties double if the accounts are late two years in a row.
What else do I need to consider?
On top of the major filing deadline, there are a few other key compliance obligations limited companies need to remember during year-end:
Confirmation statement
An annual confirmation statement must be filed each year to confirm key company details on the public record are accurate and up to date. The deadline for filing is within 14 days after the anniversary date of company incorporation.
VAT returns
For VAT-registered companies, regular VAT returns must continue to be submitted to HMRC based on the assigned filing frequency (quarterly, monthly, etc). VAT due must be paid on time to avoid interest or penalties.
How can Wallester help you?
Wallester offers a full suite of automated accounting software and services to handle your company’s entire year-end closing and filing process seamlessly. Our team of accounting experts can generate all required financial statements, make necessary adjusting entries, and prepare your statutory accounts per relevant standards. We’ll work directly with your management team to gather needed documentation and ensure we have all the data required to produce accurate, complete accounts. Wallester will then handle the electronic submission of your accounts, tax returns, and other required forms to HMRC and Companies House well before the deadlines.
We stay on top of any notices or responses from the regulators to resolve them smoothly. Whether you need full outsourced accounting or just support during the busy year-end period, Wallester has the solution to handle the workload with accuracy. Our automation, modern accounting software, and cloud-based systems mean information flows smoothly without introducing manual errors.
Contact us today for a customized quote to meet your company’s specific year-end support needs. We’re here to provide reconciliation, reporting, filing, and advisory services so you can focus on running your business.
