We’re often asked by clients, “what exactly do my statutory accounts mean about my business?”. We spoke to Joanne Alistoun and Amy Low about some of the key areas to look for when analysing your statutory accounts.
Which figures are important for mortgage applications?
For clients (sole directors/shareholders) completing a mortgage application the key figures are the salaries and dividends, not the companies turnover. We’ve had client’s think this was very unfair as these were a much lower figure than they needed for their mortgage, so it’s important to speak to us in advance of any mortgage applications so we can consider how to plan for this for the future.
Why is the tax figure in the profit and loss different from what is shown in my tax computation? (for CT paying companies only)
This could be down to several things. One reason could be that due to the performance in the financial year we may have been able to offset losses created in this year against profits made in the previous 12 months. This could result in the company receiving a refund from H M Revenue & Customs. When preparing accounts, we always look at the most tax efficient position for the company.
Another reason could be that your accounts are prepared under FRS102 (financial reporting standard applicable in the UK and ROI) which means that deferred tax needs to be calculated. Deferred tax is the difference between taxable profits (shown in your tax computation) and accounting profits (shown in the financial statements). For example, depreciation is an expense within the financial statements but isn’t tax deductible and therefore is not included within taxable profits. Deferred tax can fluctuate year to year and therefore we may need to adjust for it within the financial statement which will therefore change the tax figure in your financial statements.
When paying any corporation tax, interest can be due on late payments but also earned if the payments are made before the payment deadline. If this is the case, we may then need to include the interest earned/suffered in the next financial statements which can affect the figure shown in the financial statements. This is also true or any late filing penalties.
If you require a breakdown of how your tax figure in your financial statements, please do not hesitate to contact us.
If your company turnover is near to exceeding £85,000 and you make taxable supplies.
This could mean that you potentially need to register for VAT. You will need to check the last 12 months’ worth of sales and determine whether you have exceeded the threshold (£85,000). If you are close but not over, you will need to do this monthly on a 12 month rolling basis to ensure that if you do exceed the threshold you register with HMRC within the appropriate time frame. There are requirements now for newly VAT registered businesses to ensure they are following MTD guidelines. If you require any assistance with this process, please do not hesitate to contact us.
If you have a close company and there is an overdrawn loan account.
A close company is a limited company with five or fewer ‘participators’, or a limited company of which all the ‘participators’ are also directors. If any of the participators of the company owe the company money at the end of the financial year, there could be tax consequences.
HMRC has a Section 455 charge which is payable on the amount the participator/s owe at the end of the financial period. The charge is due if the amount owed is not repaid back to the company within 9 months after the balance sheet date. The charge is 33.75% (for loans made after 6 April 2022) of the amount owed at the end of the financial year. HMRC also have rules about how the loan must be repaid back to avoid individuals paying back the loan on the last day of the financial year and then reimbursing themselves the first day of the next financial year. Please also note that if the amount for one participator exceeds £10,000 and the interest charged by the company is below HMRC’s office rates for beneficial loan arrangements, a personal benefit may be due on the loan which has consequences for the company and individual.
To discuss anything further please contact your current Wenn Townsend contact or Joanne or Amy for more information.