1. The very back page or two is the detailed profit and loss account which as the name implies shows the profitability of the business after expenses but before tax.  The first figure will be sales or turnover which is the income for the year based on sales actually completed, but not necessarily paid for.  From this is deducted the direct costs in making those sales, ie the materials or costs which directly result in the sales being made, but will exclude any stock or work in progress which has not resulted in sales by the year end.  This results in a gross profit which should be the profit made on all the individual jobs completed during the year.
2. From the gross profit are deducted expenses or overheads which are all the costs of running the business which are not directly involved in generating sales, which will include salaries, rent and advertising for example.  There will also be other adjustments for depreciation on assets and finance costs resulting in a net profit before tax.
3. The tax is shown on a less detailed profit and loss account which is half way through accounts, normally the first page of figures from the front.  This summarises the headline figures from the detailed profit and loss then shows the tax (which will be approximately 20% of the net profit) being deducted to leave a profit after tax from which dividends are paid.
4. You will need to turn to the notes to the accounts which are towards the back to see dividends, the actual dividend paid is shown in a note at the beginning and the effect on the company reserves shown as one of the last notes.  This will show how much the company was worth at the beginning of the year, how much value was added during the year in profits and how much paid out by way of dividends.  This shows the value of the company at the end of the year which takes us to the balance sheet.
5. The balance sheet is found just before the notes pages and measures the value of the company by netting off the assets of the company against it’s liabilities.  Fixed assets are shown first including vehicles, plant and equipment, each year their value is reduced by depreciation as a measure of their age and usage.  This is shown as an expense on the profit and loss account.
6. Following fixed assets are current assets which include items more easily convertible into cash such as stock, monies owed by customers and others (debtors) and bank balances themselves.  From this are deducted current liabilities which include monies owed  to suppliers and others (creditors) and in taxes: corporation tax, VAT and PAYE.  The net of current assets and liabilities reflects the liquidity of the company, in general this should be a positive amount in order to service the running of the business.
7. If there are long term liabilities such as bank loans or HP these are deducted from the value of fixed and net  current assets to show the asset value of the business.  This will equal the value of shares owned plus the reserves balance shown in point no #4, hence the name “balance sheet”.
8. Some of the figures in the profit and loss and balance sheet, particularly of note the debtors and creditors, are not broken down into their constituent parts and the detail can be found within the notes to the accounts.

The layout of the accounts is laid out in statute and includes parts that may be of little relevance.  Your accountant should be able to explain the bits of relevance to you at the end of the year.

We hope you find the contents of this blog useful; you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• 19 April – PAYE must be paid for the period up to 5 April (usually just the March payroll) – and monthly on 19^th for each subsequent month
• 30 April – VAT Returns must be submitted and paid for quarter to 31 March (and 31 May for quarter to April etc)
• 6 May – Election day will decide who is going to use our taxes for the next few years
• 19 May – end of year P35 return must be submitted and any additional tax paid
• 31 May – give each employee a copy of their year end P60
• 4 July – American Independence Day
• 6 July – Benefit in Kind annual P11D return must be submitted and copies given to employees
• 14 July – Bastille Day in France, a good excuse for a bottle of wine and fireworks
• 19 July – Class 1A NIC paid to HMRC for P11D benefits
• 31 July – 2^nd payment on account of your 2009/10 tax bill
• 31 October – File your paper tax return (individuals and partnerships)
• 18 November – Beaujolais Nouveau wine released
• 31 January 2011 – File your tax return online (individuals and partnerships), make any final payment of 2009/10 tax and make a payment on account of 2010/11 tax if applicable .

In addition Limited companies will need to pay their tax and file accounts at Companies House 9 months from their year end, and file a corporation tax return 12 months from their year end.  Individuals do not forget you will need to advise the tax credits office of your income for last year separately despite being a part of HMRC as this will finalise your claim for the year.

We hope you find the contents of this blog useful; you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• Date registered at Companies House: The default date chosen is the end of the month one year from incorporation, so if you incorporated on 4 February 2010, your year end would automatically be 28 February 2011.  You can however change this.
• If you did not start trading through the business until May, you may want to change the year end to April so it represents a full years trade
• If you started on 4 February you might consider that your first year ended on 31 January and change it accordingly
• If you are involved in seasonal work (eg tourism) it would probably be easiest to have your year end in the off-season so that you have more time to complete the year end and also fewer transactions to split between the years
• If you have a year end which is not 31 March you have the ability to vote dividends in the most tax efficient way between the accounting years

There are some rules which limit how often you can change your year end and the maximum length:

• you may not extend a period so that it lasts more than 18 months
• you may not extend more than once in 5 years
• you may shorten an accounting reference period as often as you like
• full details available at Companies House

In reality therefore there are a number of reasons why your year end may not be the same as the tax year although at first sight this might seem the logical choice.  The notes above refer to Limited companies and while most sole traders and partnerships have March year ends some of the considerations are the same.

We hope you find the contents of this blog useful; you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

1. Is the shareholding in the company arranged in the most tax efficient way? A gift between husband and wife is tax free, but should not be done regularly as it may be treated as a right to income
2. If available have the maximum dividends been declared to make full use of the shareholders personal allowance and basic rate tax band (and minimise and higher rate tax if applicable).  If not now is the time to look at it not on 31 March!
3. If no directors remuneration has been paid for a cash poor new business consider running the payroll as this will have 3 advantages:
   1. If paying above ~£475 per month the full years NI contribution will count
   2. Even if there is no cash available, this becomes due tax free to the director when there is cash
   3. This is a taxable expense and even if there is no corporation tax saving this year, a loss can be set against future years profits
   4. If the company did not trade immediately after incorporation, consider extending the year end at Companies House so you can easily compare the first year to subsequent months. This will also delay the date corporation tax is due.

Time is short, make the most of the tax opportunities you have.  Alastair Wood, AW Accounting  – Accountants who “speak your language”

1. If a big contract goes wrong, any liability (aside from any covered by insurance) is down to you personally, there is no limitation of liability
2. You are potentially paying tax on profits which have been retained in the company and you personally have not benefitted from
3. Even if you are drawing all of the profits you are still paying higher tax than as a limited company

While this would almost certainly be benficial for that business it also applies businesses making £20-£30k profits.  A limited company is not necessarily the dream answer however, some of the drawbacks are:

1. It is a more complicated and  structure
2. Consequently it will cost more to run
3. Other obligations include completing a corporation tax return within 12 months of the year end, sending accounts to companies House within 9 months and sending an Annual Return each anniversary of incorporation.
4. Even if you are the only employee you will have to maintain and run a PAYE system, pay any tax quarterly or monthly and submit an annual P35 Return by 19 May
5. There are legal obligations which you have as a director of the company

So how do you go about it?

1. Firstly you will have to decide on a name and see if it available at Companies House, it must be different to any other on the register and the rules are quite stringent on similar names (eg adding UK to a name)
2. For consistency make sure that any web address or trade mark is available if you want them  to be the same as the company name
3. Register the company at Companies House or get a professional such as your accountant to do it for you
4. Register the company for corporation tax and PAYE
5. If turnover is above or expected to be above the VAT limit, register for VAT too.  If you are transferring from an existing company you can retain the VAT number.  In some situations it may be beneficial to register even if you are under the limit
6. Advise all of your customers and suppliers of the name so that official paperwork is all issued in the new name, you may also have to revisit existing contracts
7. Record keeping should be completed regularly so you always know how the company is doing, you may well be doing this anyway as the business has grown

The details above may not include all of the issues you need to consider and you should seek professional advice which is appropriate to your situation before taking any action.

Alastair Wood, AW Accounting  “speaking your language”