11 Feb Two Major Areas Of Financial Year End!
It’s that dreaded time of the year…Financial year-end! For accountants and business owners, this can be a stressful time of the fiscal year, with many tasks to get through!
However, when it comes to financial year-end, there are two major areas to focus on:
- Provisional Tax
- Health and Wealth
As a business owner, it is critical for you to realise that the 29th of February is a lasting snapshot of your business that will appear on your financial statement, affecting your ability to get finance, and your SARS account for the next twelve months.
Here are the two major areas you should focus on:
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Provisional Tax
Remember that SARS charges you a hefty penalty if your final taxable income submitted on your income tax return is not within 80% of your provisional tax declaration. Therefore, it’s really important to get an accurate provisional tax return submission! In order to do this, your accounting records need to be up to date and accurate.
The following areas affect your profitability, and therefore your provisional tax calculation:
Stock Takes – For businesses that are carrying inventory – a stock take MUST be done on 29 February (not 28 Feb or 1 March) – these counts must be verified and signed off for accuracy and completeness. The movement in your stock can have a significant impact on your profitability.
Employee Benefits – Any transactions that affect an employee’s final pay for February must be finalised. It’s important that you have all payroll issues resolved by the end of February.
Bad Debts– Bad news…not all of your clients are going to pay you. In this case, you will have to write this off as bad debt. Make sure you have waited sufficient time before writing off an invoice and engage with your accountant on what the SARS ruling is on qualifying bad debts.
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Health and Wealth
This relates more specifically to your balance sheet. A balance sheet is the reflection of the wealth of a business. Again, the 29th of February is an “unchangeable” snapshot of the wealth position of your business at that date. This is what the banks, lenders, investors and potential buyers will really scrutinise…
Here are some aspects for you to really consider before crossing over into the new fiscal year:
Fixed Assets
Carefully scrutinise your fixed asset register to determine if there are any assets that are no longer in use and need to be written off. Ensure that you have provided for the depreciation on all assets.
Member/Shareholder Loan Accounts – You do not want to cross over the year-end with a debit loan account. If your loan account is in debit, speak to your accountant to bring it back into credit.
Liquidity Ratio – Your liquidity ratio is determined by calculating the ratio of your current assets to current liabilities – Anything above 1:1 is considered good, anything below is considered insolvent, and you will not be able to apply for and get finance.
Dividends – If a dividend is going to be declared – it must be done by 29 Feb to reflect in the financial year that is about to end. The withholding tax on the dividend must be paid to SARS by 31 March 2020.
For The Record…
Make sure you have recorded all your expenses from your suppliers. If you have incurred any business expenses, keep track of them as you can claim tax deductions on these.
Odometer Reading – Businesses with company cars, and individuals with a travel allowance linked to their salary, must take an odometer reading on the 29th of February as this is used to prepare a logbook for submission with your personal tax return and allows travel allowances to become tax-free, resulting in a nice income tax refund!
Top Tip: If you are not using an accounting system, these processes could be manually draining, not to mention the possibility of your books not being in order.
We hope that focusing on these two areas will help you have a successful year-end closing. If you have completed all these, you deserve a pat on your back. You are all set for the next year!