Before you log off for Christmas contractors, are your company accounts sorted for Dec 31st?
Amid all the panic about IR35 changing, it’s all too easy at this busy time of year to take your eye off the ball about filing your limited company’s accounts, even though the latter could end up stinging you a lot sooner than the former, writes Gareth Wilcox, partner at Opus Business Services Group.
If like many contractors your business has a year-end of March 31st, then your accounts must be filed at Companies House by December 31st.
The cost of filing late with Companies House
But in any event, you must file your accounts no later than nine months after your accounting year end. Miss that deadline and penalties start mounting up. First, it’s £150 for being up to a month late, then £375 if you’re between a month and three months late and so on. These penalties top out at a whopping £1,500 -- if you’re more than six months late.
Fortunately, there’s some useful guidance from Companies House about getting into a routine which will help you avoid being late -- ideal for a time of the year when it feels like the clock is against us. The guidance links through to all manner of other aspects of filing your accounts. The relevant accounts for contractors are ‘Micro-Entity’ accounts.
Beyond that, one particularly useful tool is the facility to file your accounts at Companies House and HMRC at the same time, so you can avoid the risk of picking up extra penalties from late filing your company tax return. .
Old Vs New
If you’re not up with the times, you can still file your accounts the old-fashioned way in paper format. But the only thoroughly sensible way to go is electronic. It’s not just that it avoids the ‘lost in the post’ nightmare, which there’s a higher risk of around Christmas; the online filing system also makes it infinitely more difficult to get your accounts wrong, on their format at least. It really is like painting by numbers – filling in the boxes is simplicity itself.
Fortunately for all of us who don’t want to incur penalties at this expensive point in the calendar, you cannot file non-compliant accounts if you do them online, simply because the system won’t let you! It will even tell you what you’ve done wrong. Under the ‘old’ system, if you submit paper accounts by post and Companies House rejects them, you’ll disappear into a black hole of bureaucracy and delays, probably leading to late-filing penalties. It really isn’t worth the risk.
Or how about a half-way grotto? So how about you still put together your accounts manually and then input them, but why not snap up one of the many third-party software packages, which will both prepare and file them? The Companies House guidance links through to a long list of recommended software packages. But no hard sell, which is nice.
Accountants, codes and striking-off
Alternatively, there are a great number of reasonably priced accountants who specialise in preparing accounts and providing packages specifically for limited company contractors. They will be able to tie-in company filings with your personal filings and, with their expertise, might well spot deductions and tax savings which festively-frantic, Turkey-trimming contractors won’t! Those savings can be realised from both a company and personal perspective. Usually, or at least in many circumstances, the accountant’s fees pay for themselves.
But we must issue one very important word of warning about online filing. A bit like those Christmas cards you’re still yet to send via our creaky postal system, don’t leave e-filing until the very last-minute! Companies House needs to issue an authentication code for your company before you can file online. For security reasons, they’ll send this to you offline and you need to allow at least five days for the postie to get it to you.
Next, if you do end up being late-filing, be aware that there are some very limited grounds for appeal against the penalty. You really shouldn’t pin your chances on a ‘Rudolph ate my accounts’ ruse or similar. There’s a fun video on the Companies House website about the dubious excuses they’ve been given. Generally the agency’s festive-filing message is ‘Get real, if you’re late you’re going to have to pay up.’
Before you log-off here to go laugh at the video, there’s a worst-case scenario that needs to be avoided at all costs. In case you’re so overwhelmed by Christmas Day’s arrival of the in-laws, the sheer number of presents you had to unwrap or you simply ate too much Christmas pudding, with the upshot to all these being that you aren’t fussed by penalties, Companies House has the ultimate sanction in its stocking. It can actually strike your company off for non-filing!
This action leads to the freezing of company bank accounts, the vesting of a company’s assets in the state, and a whole new nightmare world of reminders and potentially hideous expenses to re-instate it. It will also inevitably lead to complications with HMRC, and you having to submit the accounts as part of the reinstatement.
Get prepared (for Budget 2020 too)
Finally, and given that those changes to IR35 are looming, many contractors will be considering whether their current PSC model remains the appropriate strategy for dealing with their engagers. As ContractorUK readers probably know by now, a decision of this nature requires up-to-date financial details and worked-out information, particularly if the decision is being taken to cease using a limited company since the appropriate strategy will be entirely dependent on the level of available assets once all liabilities are paid. This is of particular relevance in the current climate where the chancellor Sajid Javid is under pressure to curb Entrepreneurs’ Relief. It really could be a case of enjoying the current rates as they are now, or losing the opportunity after Christmas, potentially due to an announcement at Budget 2020.
So, without wanting to sound like a nagging spouse at this already stressful time of year, please get organised! Get busy prepping or filing your accounts online, engaging with your accountant promptly or reading the guidance if you’ll go it alone with company account filing this Christmas. You never know, it might be a welcome distraction from the horrors of the family feast on Boxing Day (yes, those in-laws are staying over!). And you really are welcome for the precious gift this article has bestowed under your tree -- a genuine excuse to lock yourself away during the impending holiday and snuggle up with the Companies House website. Happy filing this Christmas!