Whether you are keeping your business records on paper or using accounting software your accountant needs to know the answer to these ten important questions when preparing your businesses accounts. Why? Because getting them right will ensure that your accounts will be prepared accurately and your tax bill minimised. Getting them wrong could lead to larger tax bills because you have not claimed for all of your business expenses. Worse still, a tax enquiry years later could lead to the discovery of incorrect over claims for expenditure which would result in demands for interest and penalties amounting to thousands of pounds on the underpaid tax.
As the subject of this blog is fairly lengthy it will be posted in three parts, what follows below is part one.
How should Improvements to Business Premises be treated in Accounts?
There have been many tax cases about the difference between a repair and an improvement. The reason for this is that the cost of a repair can be deducted from income but the cost of an improvement cannot. It’s not always easy to tell the difference, for example, it used to be that the replacement of single with double glazed windows was classed as an improvement. Now, since double glazed windows are the norm, it’s considered a repair. The courts have differentiated between work on an existing chimney, which they class as a repair, and the replacement of one chimney with another in a different place as an improvement. If an asset is purchased cheaply because it is not in working condition and money is spent to make it work this is classed as an additional cost of purchase not a repair and, for tax purposes , the expenditure is treated in the same way as an improvement . Small sums are an indication that the expenditure is a repair whereas larger sums are more likely to be improvements.
Have you included Business Expenses Paid personally in your Accounts?
If not your accountant needs to know what they are and how much they amount to. If any of these are omitted this will lead to overstated profit and therefore a higher tax bill. The sort of expenditure we are talking about here is, for example, the cost of parking when you visit the bank to pay in business receipts, the cost of subsistence if you are travelling away from your normal place of business, small items of stationery etc.
Have you started factoring your debtors during the period for which the accounts are being prepared?
If you are using a factoring company to collect the money owed by your customers your accountant will need to see their statements. There are several reasons for this firstly they include the factoring company’s charges. Secondly, they show the amount of money not yet paid to the factoring company by your customers. Lastly, they show the balance you have been advanced by the factoring company. All of these amounts need to be included in your annual accounts.