New Year’s accounting resolutions

The beginning of the year is a great time to reflect on the past twelve months and prepare for the next. Here are some useful accounting tips to help you get your business finances up-to-date and ready for the year.

Keep your business in shape

People often make New Year’s resolutions to live a healthier life. For example, they might resolve to change their diet, exercise more often, or cut down on alcohol.

You can make the same sort of resolutions for your business, to help it stay in top shape for the coming year. Since money matters to your business, it makes good sense to look at its overall financial health and see where you can make improvements.

Here are 10 tips that will help you understand what you’ve achieved in the past year – and what you might be able to achieve in the next. Some you can put into action right now. Others can become resolutions to help your business grow in the new year.

1. Review your financials

It may not be the financial year end for your business yet. But it doesn’t hurt to go through all those sales receipts and invoices now, and check your bank account to make sure the figures add up.

Quality accounting software makes this easy for you – and does most of the work automatically.

2. Talk to your accountant

One good reason for getting your accounts in order now is so you can share them with your accountant for checking.

Some accountants might not want to look at the detailed figures until nearer the end of the financial year. But if you can persuade them to take a quick look now, they may be able to give you a rough idea of what your tax bill will be.

It’s good to have that knowledge sooner rather than later. That way you can ensure you save the right amount of money and avoid any unpleasant surprises.

3. Review growth, revenue and sales goals

Take some time to reflect on the past year and ask yourself some important questions:

  • Did your business grow?
  • How did your revenues and profits compare with the previous year?
  • Are you sales trending up? Take a look at the sales graphs in your accounting software to see.
  • Does your expenditure over the past 12 months give any cause for concern?
  • If you made a list of goals last year, did you achieve them?

In short, try to understand how your business has changed since the end of the previous year. If it’s grown, give yourself a pat on the back – and keep going.

If business hasn’t improved, ask yourself why, and dig into the figures to find out more. Now might be a good time to get professional advice from an accountant. They can help with the coming years financial planning. This will help you get on the right track.

4. Stay up-to-date with tax law and filing deadlines

Tax laws and regulations change on a regular basis. Talk to your accountant to make sure you’re up-to-date, and understand how any changes affect your business.

Ask them when you’ll need to file and pay taxes. Set up your calendar with the appropriate alerts and reminders for the coming year.

5. Update your payroll

Be sure to update your internal systems, such as online payroll. With the right software this will be easy to do. Items to consider include:

  • Handing out bonuses
    Check local legislation – you can probably pay bonuses now instead of waiting for the end of the tax year. It might help your tax accounting to do it sooner rather than later.
  • Pay employees electronically
    Pay your employees by direct deposit to save everyone time, money and resources.
  • Reviewing employee status
    Make sure you know the difference between an employee and an independent contractor or consultant. Check the status of all your employees. If you get this wrong it will cost you money – and you may be penalised by the government.

6. Get your accounting software up-to-date

It’s hard to take a step back and evaluate your accounting software when you’re busy using it on a daily basis. So a quieter period of the year is a good time to consider whether it’s working for you.

If you’re using traditional desktop accounting software or Excel spreadsheets, think about the benefits of moving to online accounting. Online accounting makes it easy to access your business accounts from anywhere, at any time, using a laptop, tablet or smartphone.

You’ll also reduce your IT costs, because software maintenance and upgrades are handled for you. And online or cloud accounting is secure, with powerful encryption and remote backups. So there’s less chance of your vital business information being lost or stolen.

Do your research, find out which accounting software might be suitable, then try it out. Most software packages have free trials so you can see whether the product is right for you and your business.

Christmas gifts and inheritance tax

During the holiday period one of the questions I’m asked most frequently is, “what are the IHT implications of making gifts to my family?”

This is a complex area, so it’s a good idea to review your planning regularly.

This article isn’t personal advice. If you’re unsure of the suitability of any investments for your circumstances, please contact us for personal advice. Remember tax rules can change and any benefits depend on personal circumstances.

Common IHT exempt gifts

Most of us are aware that we can make some gifts without incurring an inheritance tax charge.

One of these is £3,000 each year, which can be given to anyone you choose.

This allowance can be carried forward for one year if it’s not used, so if you didn’t use it last year you can give away £6,000 this year.

There are additional gifts like this that can be made on special events, such as marriage, as well as donations to charities and political parties.

On top of this, you can make a gift of £250 each year to as many people as you like. This can work well for grandparents with lots of children and grandchildren.

Lesser-known IHT exempt gifts

There are also lesser-known gifts you can make. One of the most overlooked is unlimited gifts from surplus income.

For this exemption to apply you’ll need to establish a pattern of gifts. The gifts have to be made from excess income and you should be able to show they don’t affect your standard of living.

Our Financial Advisers frequently work with their clients on maximising tax-efficient income to use this valuable exemption.

Potentially exempt transfers

Any other gifts not covered by the above examples are Potentially Exempt Transfers (PETs). They’re ‘potentially’ exempt as you need to survive seven years for them to become IHT-free.

So, how much can be given away without incurring an immediate inheritance tax charge?

Well, in theory, there’s no limit, so a considerable sum (even the majority of your assets) could be passed on via PETs. If you don’t survive seven years, a gift exceeding your nil rate band (currently £325,000) could be taxed. The rate of tax is reduced on a sliding scale should you survive between three and seven years.

If you’re considering substantial gifts you should seek financial advice.

Keeping accurate records

Making a record of any gifts made and, importantly, the exemption you are claiming, will help your executors administer your estate.

Our advisers can help you to record gifts appropriately and advise on the implication and timing of any gifts.

Could you benefit from financial advice?

One of the first tasks when advising clients is to look at how much inheritance tax might be payable on their estate.

With recent rule changes and the introduction of the new residence nil-rate band, now could be the perfect time to review your financial arrangements.

In addition to gifting, there are a number of other ways to reduce the impact of inheritance tax.

The challenge for investors is knowing when taking professional advice can add real value. We can help you decide – we always provide initial consultations about our advisory service without fee or obligation.

We’ll help you understand why our expert financial advisers could be the answer if you need more help, and how financial advice works, including the benefits and costs.