end of year..empty the coffers
Discussion
Our end of year is fast aproaching and Gordon Brown is there waiting for us.
Besides giving it to you (before you ask), any inspired ways of cleverly but legally reducing profits at year end?
We have upgraded all the IT we can, restocked with stamps, letterheads, envelopes and laminates, sticky tape and boxes, upgraded the software, had the cars serviced, paid insurances for the year,
Is there anything we can pay in advance without HMRC shouting? I have some web sites I need developing but not until we get the full spec after year end but can I pay in advance, can we top up our Royal mail and TNT accounts? How about paying staff their December pay early or ordering and paying for printing for 2007 delivery?
Quick, GB will only spend it on Farepak hampers.
Besides giving it to you (before you ask), any inspired ways of cleverly but legally reducing profits at year end?
We have upgraded all the IT we can, restocked with stamps, letterheads, envelopes and laminates, sticky tape and boxes, upgraded the software, had the cars serviced, paid insurances for the year,
Is there anything we can pay in advance without HMRC shouting? I have some web sites I need developing but not until we get the full spec after year end but can I pay in advance, can we top up our Royal mail and TNT accounts? How about paying staff their December pay early or ordering and paying for printing for 2007 delivery?
Quick, GB will only spend it on Farepak hampers.
Not really, a competent and professional accountant would defer any pre-paid anmounts into the following year, so you would not get the benefit of the early payment as a deduction in this year's profit and loss account. All you would get is a "cash flow hit" for no tax advantage.
However, careful analysis of the end of year situation might reveal work billed in advance or work billed slightly early, which could be legitimately deferred into "Accrued Income" in the balance sheet, thereby reducing this year's income.
Again, careful analysis of end of year Stock in Hand and Work in Progress values might allow some flexibility in adjusting the eventual final profits. The main thing to consider when approaching such valuations is that they are done in line with approved accounting standards and do not distort the accounts to such an extent that the figures start to look rather unbelievable.
Voting salary bonuses (as mentioned above) might be worth considering - assuming
a) the company can actually afford it
b) the employment contracts allow it
Please note that if Salary Bonuses are voted, it is compulsory that all PAYE and NIC arising on these bonuses MUST be paid over to the Revenue within 9 months of the end of the company's financial year. If these tax liabilities are not paid, the Revenue will NOT allow the bonus provision as a deduction in the annual accounts.
However, careful analysis of the end of year situation might reveal work billed in advance or work billed slightly early, which could be legitimately deferred into "Accrued Income" in the balance sheet, thereby reducing this year's income.
Again, careful analysis of end of year Stock in Hand and Work in Progress values might allow some flexibility in adjusting the eventual final profits. The main thing to consider when approaching such valuations is that they are done in line with approved accounting standards and do not distort the accounts to such an extent that the figures start to look rather unbelievable.
Voting salary bonuses (as mentioned above) might be worth considering - assuming
a) the company can actually afford it
b) the employment contracts allow it
Please note that if Salary Bonuses are voted, it is compulsory that all PAYE and NIC arising on these bonuses MUST be paid over to the Revenue within 9 months of the end of the company's financial year. If these tax liabilities are not paid, the Revenue will NOT allow the bonus provision as a deduction in the annual accounts.
Edited by Eric Mc on Friday 10th November 07:53
Eric Mc said:
I hope you aren't claiming back the Input VAT on the booze?
The receipt says 'Food' and has a VAT number so it would be rude not to claim it back in my opinion, it can join all the other receipts in the subsistence pile. When the bar bills are really big the receipts say 'Food and accomodation'....
We had a VAT inspection a couple of months ago and the inspector never raised an eyelid despite our local pub being one of our biggest UK based suppliers.
They don't pick everything. You take the risk when you make the claims. Looks like you "got away" with that one. Well done.
In fact, if the pub is one of your suyppliers, he may not have noticed what the bills were for. Even subsitence claims are restricted if the venue is over 5 or six mile away from your place of business.
In fact, if the pub is one of your suyppliers, he may not have noticed what the bills were for. Even subsitence claims are restricted if the venue is over 5 or six mile away from your place of business.
workshy fop said:
Pay a lump sum in to a pension. Reduces profits and therefore corporation tax. Plus the tax benefits of a pension for a 40% tax payer.
I had thought about that, but don't want to tie it up for 600 years and then be made to buy an annuity thingy. I already have half decent pension provison and you can't drive or sail an annuity.
I am delaying taking in non urgent work now, and delaying it until December (with the agreemnet of clients) to avoid money coming in I can't put any costs against. I may end up paying it in 2007, but it gives me 12 months to find things to buy.
I think I may buy another top end lap top anyway
Don't forget that if your company's financial year end on 30 November 2006 , 31 December 2006, 31 January 2007 or 28 February 2007, some of the accounting year will have fallen within the Corporation Tax year ended 31 March 2006. Company profits up to 31 March 2006 were exempt from tax if they fell below a £10,000 ( and there were no dividends paid). This £10,000 Zero Rate band is time apportioned if your financial year end straddles 31 March. Therefore, some of your company's profits this year might be apportioned into a zero rate period, and escape ANY Corporation Tax. If you delay introducing income into the next financial year you will be increasing next year's profits. The £10,000 Zero Rate band is now abolished and ALL of these enlarged profits will be subject to Corporation Tax.
Just a thought.
Just a thought.
Eric Mc said:
Don't forget that if your company's financial year end on 30 November 2006 , 31 December 2006, 31 January 2007 or 28 February 2007, some of the accounting year will have fallen within the Corporation Tax year ended 31 March 2006. Company profits up to 31 March 2006 were exempt from tax if they fell below a £10,000 ( and there were no dividends paid). This £10,000 Zero Rate band is time apportioned if your financial year end straddles 31 March. Therefore, some of your company's profits this year might be apportioned into a zero rate period, and escape ANY Corporation Tax. If you delay introducing income into the next financial year you will be increasing next year's profits. The £10,000 Zero Rate band is now abolished and ALL of these enlarged profits will be subject to Corporation Tax.
Just a thought.
Just a thought.
sadly, or not, profits are over the £10,000.
One thing to bear in mind though, is if you're thinking about selling the company any time soon. When looking at profits (one view on valuation) it's fair enough to add-back shareholder bonuses, salaries, pension, etc., however it's hard to persuade a buyer that the extra stock (or whatever) you bought was not really necessary, but was used to depress profits. Generally a buyer will look at the last three years P&L, often weighted to more recent results, and form a view of the company's value by applying a multiple to the profits including (legitimate) add-backs.
The £10,000 Zero Rate band still applies to those profits up to £10,000, even if total profits exceeded £10,000.
Adjusting Stock and WIP figures PURELY to depress figures is essentially fraud - unless you can argue that the valuation of the Stock or WIP is based on normal accounting standards - and can be verified when reviewed in the context of what actually happened to that Stock or WIP AFTER the year end.
Adjusting Stock and WIP figures PURELY to depress figures is essentially fraud - unless you can argue that the valuation of the Stock or WIP is based on normal accounting standards - and can be verified when reviewed in the context of what actually happened to that Stock or WIP AFTER the year end.
EricMC said:
Adjusting Stock and WIP figures PURELY to depress figures is essentially fraud - unless you can argue that the valuation of the Stock or WIP is based on normal accounting standards - and can be verified when reviewed in the context of what actually happened to that Stock or WIP AFTER the year end.
What Eric says here is very correct, any decent accountant will not let you do this, as it is basically fraud. You also start on a slippery slope as if you have a better year next year, you'll try doing the same but with even bigger figures, and if you have a worse year, the losses are amplified by the fact that you carried forward imaginaery stock/WIP
I suggest that you pick up the phone and arrange an hours meeting with your accountant and one of his tax specialists. The money spent doing this will be more than saved and will stop any fraud taking place.
davidy
That is the best approach. Don't let tax matters dictate the essentials as to how you run your business. Obviously, this doesn't mean you should ignore the tax implications of transactions and business decisions, just that tax should always be a secondary consideration.
Catherinej - only you know why you might need a new accountant
Are you disatisfied with the service you are receiving?
Catherinej - only you know why you might need a new accountant
Are you disatisfied with the service you are receiving?
Edited by Eric Mc on Saturday 11th November 11:23
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