Charitable Donations in Life and Death

How to Include Charitable Donations in Your Tax Planning Strategy

Incorporating charitable giving into your tax planning strategy can be a useful way to reduce both your income tax and the inheritance tax (IHT) that will eventually become payable on your estate.

As such, gifts may become an important component of both the estate planning process and the more immediate goals of reducing your income tax bill.

You can make charitable gifts at any time during your lifetime and posthumous gifts can be written into your will.

Gifting and Income Tax

Making Gifts Through Payroll

Payroll giving schemes allow you to donate to charity directly from your wages or your pension. The donations will be made before your employer deducts tax from your gross pay.

The amount of tax relief you get will therefore depend on your marginal rate of tax:

  • Basic rate taxpayers: 20% tax relief
  • Higher rate taxpayers: 40% tax relief
  • Additional rate taxpayers: 45% tax relief.

Of course, access to payroll giving schemes is dependent on your employer operating one.

Talk to your employer to find out whether this option is available to you.

Gift Aid

There are tax incentives for higher and additional rate taxpayers to make charitable donations through gift aid.

Gift aid is a government scheme that allows charities and certain community sports clubs to claim an additional 25% of any donation you make.

Higher and additional rate taxpayers can then claim the difference between the rate they pay and the 20% basic rate of tax on the amount donated.

Donations will not qualify for gift aid if they’re more than four times what you have paid in income tax and/or capital gains tax (CGT) in the previous tax year.

Donating through gift aid is simple. You must send the charity a gift aid declaration form containing your personal details and the amount you want to donate.

Example

John donates £500 to a charity. The charity claims the gift aid on the donation, making the total amount received by the charity £625. As a higher rate taxpayer, John can claim tax relief on the difference between the higher rate (40%) and the basic rate (20%) on the gross donation – which in this case is 20%. He therefore claims £125 in tax relief on his donation (£625 x 20%).

Gifting Non-Cash Assets

No tax is payable on assets, such as shares, property and land, that you gift to charity or sell to a charity at below market value. Donations of such non-cash assets are therefore usually exempt of both income tax and CGT.

You can claim income tax relief on such donations by deducting the value from your total taxable income when completing your self-assessment tax return. Note that you may be liable for CGT if you sell land, shares or property to a charity for less than the market value, but for more than you paid for them.

Gifting and Inheritance Tax

It is possible to reduce the amount of IHT charged on your estate by making strategic gifts and charitable donations. This can be done by making gifts during your lifetime and writing donations into your will.

Inheritance Tax-Exempt Gifts

Gifts to charities and political parties are exempt from IHT. The annual exemption allows you to make up to £3,000 in IHT-free gifts every financial year. Any gifts made below this amount will not be considered part of your estate when HMRC calculates your IHT liability. The annual exemption can be carried forward by one year if you fail to use it all in a single tax year.

There are other IHT-exempt gifts in addition to the annual exemption amount.

During Each Tax Year you can:

  • Spend up to £1,000 in wedding and civil ceremony presents per person (this increases to £5,000 for a child of your own who is getting married and £2,500 for a grandchild or great-grandchild).
  • Give presents out of your income, such as birthday and Christmas gifts (though doing so should not affect your standard of living).
  • Give up to £250 in small gifts to as many people you want.
  • Give financial support to a family member (for example, a child or an elderly person).

With the exception of the small £250 gifts, these exemptions can be combined to be used on the same person.

If, for example, your child gets married, you are able to make IHT-exempt birthday and wedding gifts in the same year. However, you are unable to gift a wedding present if you have already given them a £250 gift.

Potentially Exempt Transfers

Potentially exempt transfers (PETs) are gifts made during your lifetime that may be exempt from IHT depending on how long you live for after the transfer is made.

The gift will be IHT-free if you live for seven years after the transfer date. Passing away within the seven-year period will result in an IHT charge to be paid by the recipient of the gift. The rate of IHT will be determined by the number of years you lived after making the transfer. The longer you live, the bigger the IHT reduction.

This is known as taper relief and operates as follows:

Years between gift and death Tax paid
Less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
More than 7 0%

Writing Gifts into Your Will

Any charitable donations written into your will are not considered part of your estate for IHT purposes. What’s more, your estate will benefit from a reduced 36% IHT rate should you leave 10% of your net estate to charity.

Example

Alice has an estate whose total value is £1.5 million. The net value of her estate is therefore £1.175 million (£1.5 million – £325,000 IHT nil-rate band). Alice will be charged the 40% IHT rate, resulting in £470,000 going to the taxman (£1.175 million x 40%).

Instead, Alice can leave 10% of her net estate to charity (£117,500). What remains of her net estate (£1,057,500) will be charged the reduced 36% IHT rate. This means that she will be taxed £380,700 (£1,057,500 x 36%) instead of £470,000, saving her £89,300 in tax.

You have two options when it comes to gifting assets to charity in your will: pecuniary legacies and residuary legacies.

Pecuniary legacies involve leaving a fixed sum of money to a designated charity, while residuary legacies provide the charity with a share of your estate once any liabilities have been settled and legacies paid out.

Ensure you include the following information when writing a charity into your will:

  • The name of the charity;
  • The registered number and address of the charity;
  • A receipt clause: this allows the charity to accept the legacy;
  • A merger clause: this provides your executor with flexibility about the destination of the donation, should the charity merge or stop operating.

If you have any questions or if you would like some more information, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Not for Profit team.

This article originally appeared on the blog of our member firm, MHA Broomfield Alexander.

The Corporate Deals Market in 2018

Our MHA Corporate Finance team offer their thoughts on the year ahead and what it holds for the corporate deals market.

How do you Expect the Corporate Deals Market to Perform in 2018 vs 2017?

At a national level, 2017 was a very busy year for MHA.

Uncertainties surrounding Brexit will remain, but 2018 should see the implications for businesses becoming clearer. Whatever happens across the wider economy, businesses and their owners will still move towards transition points. Whether it is owners wanting to retire or a business becoming part of something bigger.

What External Factors will Affect the M&A Market in 2018?

One word might seem like the answer – Brexit. However, really it is about how businesses choose to react to the uncertainties continually thrown up by life. Looking further afield, geo-political factors could also impact, potentially significantly. This could include tension in the Far East and the continual rise of China to a position of global primacy. That is a longer-term trend, but the chafing which might arise in its relations with the USA, in particular, could have ripple effects which lap up on our shores.

Do you Think the Brexit Threat is Exaggerated?

As the Brexit question takes us into utterly uncharted waters, we simply don’t know. Perhaps all we can sensibly say is that as with any fundamental change of a status quo, the potential downsides are usually more readily identifiable than possible upsides. It will likely not be as bad or as good as both extremes claim.

It is a threat, of course, but the sun will still come up. Businesses will either manage, flourish or fail in the post-Brexit world, as they always have done with any threats. ‘Prepare for the worst and hope for the best’ is perhaps the most sensible thing one can say.

What Does the Current Funding Landscape Look Like for the Year Ahead?

Interest rates may start creeping upwards if further base rate rises occur. The recent comments coming out of the Bank of England suggest we may see more rises in 2018. However, the Bank will be mindful of not choking off the economy which, despite low (by recent standards) unemployment figures, still strikes many as fragile.

Are Deals Being Done in a Different Way Now to the Way They Were a Few Years Ago? If so, Why is This?

Yes and no. Certain deals (MBOs for instance) are seeing greater use of deferred consideration, where part of the purchase price is payable at some future date. However, these structures look less unusual if you take the long view to the late 1990s and early 2000s.

What’s Your Advice to Those Looking to do Deals in 2018?

There will be many opportunities, so keep an open mind and be alive to them.

If you are thinking of selling then ask yourself, why this is? What is it that you are trying to achieve by selling the business? Is it a sum of money? Or is freeing up your time more important? Depending upon your ultimate goal, it may be possible to achieve this in another way and yet still retain ownership of the business.

To those who are considering acquisitions, getting your funding in place beforehand will give you certainty, flexibility and the ability to act quickly.

If you have any questions or if you would like some more information, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Corporate Finance team.

This article originally appeared on the blog of our member firm, MHA Moore & Smalley.

Real Estate Matters – Issue 7

Our Construction & Real Estate team have worked together to provide a national outlook on the issues facing the construction and real estate sectors.  

Issue 7 of Real Estate Matters contains articles on the 2017 Budget announcement and how it affects the sector, equity release loans, a construction sector overview and an update on the residential house price index.

Read the full publication: Real Estate Matters – Issue 7

Issue 8 will be released in April 2018. Follow us on Twitter and LinkedIn to make sure you don’t miss it!

If you would like to discuss any of the issues raised in more detail or if you would like to speak with a member of our Construction & Real Estate team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

Introducing MHA Broomfield Alexander

We are proud to announce that our member firm Broomfield & Alexander has rebranded to MHA Broomfield Alexander, formally signalling their partnership with MHA.

MHA Broomfield Alexander have been the Welsh member firm of MHA since 2010.

MHA Broomfield Alexander have been providing clients with advice in accountancy, tax and business for more than a century and they continue to grow as a business, best demonstrated by their acquisition of Monmouth-based accountancy firm, Agincourt Practice. This allowed them to expand their office footprint to four across South Wales, adding to their existing offices in Cardiff, Newport and Swansea.

Ian Thomas, Managing Director at MHA Broomfield Alexander, said:

“As a firm, we have operated as part of the MHA association for the past seven years – rebranding made perfect and positive commercial sense. We have done so from a position of strength and are confident that this alliance puts us in good stead for the future.

Our clients will continue to be at the forefront of all that we do. Indeed, they will only notice the benefits that our association with MHA brings, such as the sharing of expert knowledge and best practice between colleagues locally, nationally and internationally.

MHA is represented in the different UK regions by firms which are characterised by a strong, local presence and reputation. This reflects our own ethos of maintaining and enhancing our regional links in Wales, as well as continuing to support our clients who operate on a wider basis.”

11 Key Steps for Trustees, 1 Giant Leap for Your Charity

Following on from our governance document, we have created a month to month checklist as a guide for trustees to help them to upskill and improve standards in a stepped and measured way. Each article covers an area of concern for trustees that you could review within your organisation and leads you through the issues, giving clear advice and signposting where you can find extra guidance.

Working through the checklist will ensure small marginal improvements are achieved at each stage. This will result in a cumulative improvement in trustees’ knowledge and in standards within your organisation. It should ensure that you make continual, incremental gains and will assist you in being at the forefront of exemplar trusteeship.

The report covers the following topics:

  • Month 1 – Finding New Trustees
  • Month 2 – Internal Financial Controls
  • Month 3 – Collaborative Working and Mergers
  • Month 4 – Investments
  • Month 5 – Trustees Meeting and Decision Making
  • Month 6 – Trading and Tax
  • Month 7 – Campaigning, Lobbying and Political Activity
  • Month 8 – Risk Management
  • Month 9 – Expenses
  • Month 10 – Fundraising
  • Month 11 – Conflicts of Interest
  • Month 12 – Your Month to Month Checklist

Use your ‘Month to Month Checklist’ at the start to assess where you are now in each of the areas. Once you have read a section, fill in the ‘Where do you want to be and how will you get there?’ part of the checklist. Then at the end of the year, assess whether you achieved your goals or not.

Read the full report: 11 Key Steps for Trustees, 1 Giant Leap for Your Charity

Don’t worry if you don’t quite get to where you want to be. If there is something that you are struggling with or would like some advice on, our specialist advisors to the Not for Profit sector will be able to help. Our Not for Profit specialists are able to draw on a vast wealth of experience and expertise encompassing the full range of Not for Profit organisations, including education institutes, grant making bodies, religious organisations and a wide array of charitable focuses.

If you have any questions about the issues raised in this report or would like to discuss your accounting and business advisory needs with one of our sector specialists, please email Hannah Farmborough or call on 0207 429 4147.

Year End Tax Planning Guide 2017/18

Our national Tax team have worked together to create a 2017/18 Year End Tax Planning Guide. Our year end guide summarises some key tax and financial planning tips which should be considered prior to the end of the tax year on 5 April 2018 or for companies, the end of the financial year on 31 March 2018.

The guide covers the following topics:

  • Income Tax
  • Capital Gains Tax
  • Tax Favoured Investments
  • Property Investment Businesses
  • Inheritance Tax
  • Pensions
  • Corporation Tax
  • Capital Allowances
  • Enhanced Tax Reliefs
  • Scottish Taxes
  • Welsh Taxes
  • Republic of Ireland Taxes
  • Northern Irish Taxes

Read the full guide: 2017/18 Year End Tax Planning Guide

If you have any questions or would like some advice with regards to your year end tax planning, please email Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Tax team.

Baker Tilly International Launch Their First Mobile Tax App – Tax Mapp

New Tax App for Android and IOS

Our international network, Baker Tilly International has developed a new mobile application that brings the latest tax insights and gives you access to comprehensive tax guides, from your smart phone and mobile devices.

‘Tax Mapp’ gives users access to the latest global tax news and global tax content at the touch of a button.

Available on both IOS and Android, the free application allows users to keep up-to-date with the latest tax news through weekly insight articles from International Tax Review and TP Week on key tax matters, as well as access to comprehensive tax guides covering 150 countries.

You can download the tax app for both Android and IOS devices:

Tax Mapp: Android

Tax Mapp: IOS

Click here to watch a tutorial video on how to use the app.

Stamp Duty Relief for First Time Buyers

Following the Autumn Budget on 22 November, first time buyers would have been forgiven for thinking Christmas had come early. One of the biggest highlights of Phillip Hammond’s Autumn Budget was the announcement that Stamp Duty Land Tax (SDLT) for first time buyers would be abolished for first time purchases up to £300,000 – with immediate effect!

The government recognise the desire and need to get first time buyers onto the property ladder and realise the cash constraints many first time buyers face. Measures were already in place to help first time buyers prior to the budget announcement, with a SDLT exemption in place on the first £125,000 of the property value. Increasing this threshold to £300,000 represents the largest ever increase in the point at which first time buyers become liable for SDLT.

A first time buyer is defined as someone who has never owned freehold or leasehold interest in a dwelling before and who is purchasing their only main residence. If the property is being bought jointly, all purchasers would need to be first time buyers. It is important to note that worldwide residential property is included when considering whether someone is a first time buyer.

SDLT is charged at 5% over £300,000, up to £500,000. The normal SDLT rates apply over £500,000 (5% to £925k, 10% on property between £925k to £1.5m and 12% above £1.5m). The SDLT rates are applied on the proportion of the price in the relevant band. For example, a property bought for £400k will only pay £5k of SDLT (£300k at 0% and £100k at 5%).

This means that all first time buyers will benefit from the relief. With the average property for first time buyers in the UK (outside of London) costing £208k, it means that the average first time buyers will pay no SDLT (previously £1,660). As expected, the average price for a first time buyer in London is nearly double that of the rest of the UK, with average London prices of £410k. Whilst Londoners will still have to pay SDLT, the relief introduced means that the charge is nearly halved from £10.5k to £5.5k. It is estimated that 95% of first time buyers who pay SDLT will benefit, including almost 80% in London.

Whilst there is no doubt the relief available will be welcome and beneficial, some may point to the fact that the proportion of saving is small compared to the cost of the property. It begs the question: is the SDLT relief actually sufficient motivation (and help) for first time buyers to take the first rung of the property ladder? I doubt it. If you have access to sufficient funds to get onto the property ladder, £1k-£5k saving (which represents around 1% of the property transaction) isn’t likely to make or break the deal; it does make it a lot sweeter though!

If you have any questions or if you would like some more information, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Construction & Real Estate team.

This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.

How to Complete Your Self-Assessment Tax Return Online

For self-employed people, company directors and those receiving other sources of income, it’s the time of the year to send your self-assessment tax return. Self-assessment is the process used by HMRC to collect tax from individuals who may own a business or receive income outside of formal employment.

A tax return is a form which accounts for all income an individual received during the tax year, which runs from 6 April to 5 April. This can be completed on paper or online. While the fundamentals of self-assessment remain unchanged, more and more people are becoming self-employed. Figures from the Office for National Statistics reveal the number of workers registered as self-employed at the end of August 2017 reached 4.86 million – up 70,000 on the same time in 2016.

As self-employment is proving popular, many who have left employment will be coming into self-assessment for the very first time. This article will go through the process of self-assessment and the steps to complete your tax return on time.

Registering

In order to send a tax return you first need to register for self-assessment with HMRC. The deadline to register for the 2016/17 tax year was 5 October 2017. You only need to do this once, so if you have registered in the past you don’t need to re-register each year.

You may need to complete a self-assessment tax return if you:

  • Are self-employed
  • Earned £2,500 or more in untaxed income (such as from rental property)
  • Earned £10,000 or more from savings or investments
  • Received profits from assets subject to capital gains tax
  • Were a company director
  • Received dividends of £10,000 or more
  • Received child benefit and you or your partner earns £50,000 or more.

As a self-employed person you need to register for self-assessment as a sole trader. You can do this online through the HMRC’s website. Once you’ve registered with HMRC, you will receive a letter within 10 days containing your 10-digit unique taxpayer reference (UTR) and an activation code to set up your online account. If you’re not self-employed and need to register for self-assessment, you must complete form SA1.

If you’re in a partnership then you need to register as a partner. You need to register both yourself and the business as a partnership if you are a ‘nominated partner’.

Filing Your Tax Return

Once registered, the next step with HMRC is to complete the tax return form and submit it. There are two ways to complete your self-assessment tax return – downloading, printing and filling in SA100 paper form or filling it in online through the HMRC’s website.

The deadline for paper forms was 31 October 2017, but you have until 31 January 2018 to send your tax return online. You’ll need your UTR, user ID and password to sign in to your online account.

SA100 is the main tax return form for self-employed people. This is used to record any income, capital gains, pensions and tax reliefs collected during the financial year. There are various commercial software tools available that can submit parts of the tax return or you can use HMRC’s free software. Visit the HMRC website to see the services which are compatible.

Financial Records

You should have your financial records to hand when completing your self-assessment tax return.

If you’re registered as self-employed, you need to keep the following records:

  • All your business expenses
  • Records of any sales or income
  • PAYE records (if applicable)
  • VAT records (if registered)
  • Records of your personal income

If employed or a company director for a limited company, you may also need:

  • P45, P60 and P11D forms
  • Certificates from a Taxed Award Scheme
  • Information about any redundancy or termination payments
  • Information about income and benefits from your job

Types of Income

If you’re earning other types of income, such as from a rental property or savings, then you need to fill in more sections known as ‘supplementary pages’.

These sections relate to the following types of income:

  • Employees or company directorsSA102
  • Business partnerships – SA104S or SA104F
  • Property income – SA105
  • Foreign income or gains – SA106
  • Capital gainsSA108
  • Non-UK or dual residents – SA109.

Paying Tax

Once you’ve filed your tax return you will receive a bill from HMRC on how much tax you owe for the tax year, which in this case is for 2016/17. This will then need to be paid to HMRC by midnight on 31 January 2018. The tax bill may take up to 72 hours to be accessible after you’ve filed your return. It can be found in the ‘view your calculation’ section of your online account. The bill includes the tax you owe for the previous tax year and, if this is more than £1,000, it may include an additional payment towards next year’s bill. This is known as ‘payments on account’ with each payment being half your tax bill. Payments are due by midnight on 31 January and 31 July. Payments can be made either by phone, online or by cheque through the post. Credit card or direct debit payments will arrive the same or next day, while sending by post can take up to three working days.

Deadlines

There are four deadlines to keep in mind when completing your self-assessment tax return and paying tax to HMRC. These are:

Self-Assessment Task Deadline
Registering 5 October
Submitting paper tax return 31 October (midnight)
Submitting online tax return 31 January (midnight)
Paying tax 31 January (midnight)

Penalties

If you miss the self-assessment deadline, you could face a penalty charge. If your return is up to three months late you’ll receive a penalty of £100, and this could go up further if you leave it even longer. You can appeal against a penalty but this can only happen if there’s a ‘reasonable excuse’.

The following circumstances may provide grounds for an appeal:

  • If a partner or close relative has passed away prior to the deadline
  • Serious illness
  • An emergency hospital stay
  • Unexpected delays in the post
  • An IT failure (hardware or software) when preparing your tax return
  • External causes (fire, flood or theft) which prevented you from completing a return
  • Issues with HMRC services.

If you have any questions or if you would like help submitting your tax return, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Tax team.

This article originally appeared on the blog of our member firm, Broomfield & Alexander.

Accounts for Limited Companies

Audits may be a thing of the past, but certain annual reports still apply. If you’re a business owner, you may be familiar with the process of submitting your accounts for official inspection by an independent body. This is known as an audit.

You may also breathe a sigh of relief as most small businesses are no longer required to get their financial statements audited after the exemption thresholds were increased for financial years that begin on or after 1 January 2016. However, shareholders can still request your accounts be subjected to an external audit if they own at least a 10% stake in your business.

On the other hand, some firms voluntarily choose to be audited to ensure all financial reporting is in line with current accounting standards and legislation. Even though audits may be a distant memory for most business owners, certain annual reports are still required by law and failure to submit them by the deadline can lead to severe penalties.

Statutory Accounts

All companies are legally obliged to file statutory accounts on an annual basis with HMRC as part of their company tax return. These are prepared from your financial records before being reported at your financial year-end.

Your statutory accounts should include:

  1. A balance sheet showing the assets owned by the company, any outstanding debts and anything your business is owed on the last day of your financial year.
  2. A profit and loss account that outlines the company’s sales, running costs and the profits or losses made over the course of the financial year.
  3. A director’s report which explains the financial state of the company and its compliance with a set of financial, accounting and corporate standards (the very smallest companies, known as micro entities, don’t need to produce a director’s report).
  4. An auditor’s report may be needed depending on the size of the company.

You must send copies of your accounts to:

  • Shareholders
  • Anyone who can go to your company’s general meetings
  • HMRC
  • Companies House

Abridged Accounts

Small businesses and micro entities can no longer submit abbreviated accounts to Companies House – unless they relate to accounting periods beginning before 1 January 2016.

Previously, you may have prepared your full accounts for your members and abbreviated accounts for filing on the public record. However, you may be able to send abridged accounts instead of full accounts to Companies House. These contain a simpler balance sheet which means less information about your company will be publicly available.

Abridged accounts are prepared in a similar way to abbreviated accounts, although the decision to abridge all or part of your annual accounts must be universally pre-agreed by your members. Members’ consent must be obtained in the previous financial year and an accompanying statement must contain the sentence: “members have consented to the abridgement” to outline their approval before the accounts are filed with Companies House.

A company is considered small if it meets two of the following criteria:

  • Annual turnover of £10.2 million or less
  • Assets worth £5.1 million or less
  • 50 or fewer employees.

Your company may be able to disclose less information than a small business if it is classed as a micro entity.

To qualify as a micro entity, your business must meet two of the following criteria:

  • Annual turnover of £632,000 or less
  • Assets worth £316,000 or less
  • 10 or fewer employees.

Owners of micro entities can prepare simpler accounts to meet statutory minimum requirements, such as sending a balance sheet containing less information to Companies House.

Record Keeping

Your business is legally obliged to keep company records as well as financial and accounting records. Records should usually be kept for at least six years from the end of a tax year.

Company Records

Company records you are obliged to keep include:

  • Details of company directors, shareholders and secretaries
  • Loans or mortgages secured against company assets
  • Indemnity promises
  • Debentures promises (for the company to repay loans at specific dates in the future)
  • Results of shareholder votes or resolutions
  • Transactions when someone buys company shares

In addition, you must also keep a register of people with significant control in your business. This should contain details of anyone who:

  • Owns more than a 25% stake in your company
  • Has the power to remove or appoint directors
  • Can influence or control your company

Accounting Records

Among other things, your accounting records should include all income and expenditure, plus details of any assets, debts or stocks either owned or owed at the end of your company’s financial year. You should also retain any invoices, receipts and any other documents you may need to prepare or to file your annual company tax return. Failure to maintain accounting records could land you a £3,000 fine.

Penalties

Failing to send your accounts to Companies House on time will incur a penalty. The following penalties will apply:

Time After Deadline Penalty
Up to 1 month £150
1 to 3 months £375
3 to 6 months £750
More than 6 months £1,500

You can appeal against late penalties but must provide a valid reason.

You can’t appeal penalties by claiming:

  • Your company is dormant
  • You cannot afford to pay
  • It’s the fault of your accountant
  • You don’t know how to file your accounts
  • Your accounts were delayed or lost in the post
  • The directors live, or were travelling, overseas.

Deadlines

The deadline for filing your accounts for the first time is 21 months after the date you incorporated your company with Companies House. If you’re filing your accounts annually, the deadline is nine months after the end of your company’s financial year.

Companies House may extend the deadline if your business is prevented from sending your accounts due to circumstances beyond your control, or if you apply for more time before the deadline has passed.

Reasons for Being Audited

All private limited companies are subject to annual statutory audits unless they meet two of the following conditions:

  • Annual turnover of no more than £10.2 million
  • Assets worth no more than £5.1 million
  • 50 or fewer employees.

The Audit Process

Audits are conducted by external auditors. These are usually independent accountants who ensure your financial statements are accurate and compliant with UK GAAP.

There are five stages to an audit:

  1. Planning the audit approach,
  2. Testing the company’s internal financial controls,
  3. Evaluating the company’s recording of transactions,
  4. Analysing or testing a company’s financial records,
  5. Producing an auditor’s report.

The auditor will ensure they understand your business’ industry, regulators, accounting policies, objectives and strategies, and business risks before commencing the audit. They will check financial records, receipts, invoices, bank statements and compare financial information with non-financial company information to check consistency. The auditor’s final report will include their conclusion as to whether the company’s financial statements are accurate and fairly presented before signing it, dating it and filing it with Companies House.

If you have any questions or if you would like help with your accounts, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Audit team.

This article originally appeared on the blog of our member firm, Broomfield & Alexander.