Your essential checklist for January 2021

This January, the workload for accountants is set to increase beyond what is normal for the New Year.

Accountancy work for clients will be unusually bespoke in 2021, with a lot of time and effort into assessing individual circumstances and effects, says Gary Heynes, Head of Private Client Services at accountancy network RSM UK.

What to do in January

The damage Covid-19 has wreaked upon small businesses looks set to be colossal, with many companies struggling to stay afloat. Yet, preparing 2019-20 accounts will be little different to previous years, largely because the first national lockdown wasn’t enforced until 23 March (meaning, for most businesses, only a week’s worth of takings was affected) and firms didn’t receive government loans until April/May.

However, there are things accountants can do with the 2019-20 accounts that will not only soften the blow clients will feel in their 2020-21 returns, but help reduce your workload for 2021 too.

1. Reduce payments on account

If a client’s income has dropped significantly during 2020, it might be possible to lower their payments on account (known as advanced payments towards their tax bill).

“Before filing the 2019-20 tax return, think about where the current [2020-21] year might end up,” suggests Heynes. “If the business has had a normal year until 31 March 2020, but profits have dipped since, they won’t want to pay loads of tax in January 2021 for the year ahead when they don’t have to. So you could make a claim to reduce payments on account.”

2. Consider changing the accounting date

Another procedure to help Covid-afflicted firms is extending the accounting period to an 18-month period, which could cover the loss-making months during 2020-21.

“It’s beneficial for any businesses who’ve had a healthy 2019-20, but predict a tougher 2020-21,” says Heynes. “By extending the period of accounts, you can apportion some profits from the healthy year (2019-20) and mingle it with losses from this year (2020-21). This will reduce the overall taxable amount and payments on account to give a better cash flow for the year ahead.”

3. Dealing with tax deferrals

Businesses and the self-employed can defer their self-assessment tax payments until 31 January 2021. However, some businesses/clients have paid the tax in July and others haven’t, potentially causing headaches for accountants compiling their tax returns.

“If they can’t afford to make the 2019-20 balance payment, they could enter a Time to Pay arrangement with HMRC (see below),” says Heynes. “Agents will be busy [processing deferrals] because they’d need to look at every single case differently. Many conversations may need to take place to settle those payments before the end of January.”

4. It’s not too late to apple for emergency business loans

Businesses now have until 31 January to apply for emergency business loans, including bounce-back loans and the coronavirus business interruption loan scheme (CBILS) for larger firms.

“Bounce-back loans are very easy to get and will help businesses in a year when they’re not earning anything [funding up to £50,000 is available]. It could help pay off the business credit card or other business loans,” says Jane Norton FMAAT, director and founder of Norton Accountancy.

5. Preparing company year-end accounts

“Statutory accounts should be prepared based on the company being a ‘going concern’ [a company that is operating and expected to make a profit] even if it might be trading at a reduced rate with lower income,” says Rachel Emmerson, a Senior Manager at Kreston Reeves.

Emmerson adds any companies with year-end accounts starting from April will need to have accounting policies added to their statutory accounts. “Because there are new transactions and balances, accounting policies will need to be updated with new ones. For example, you’d need an accounting policy for government grants before including furlough income.”

Companies House has also urged accountants and finance professionals to file annual accounts online and as early as possible as it continues to be disrupted by Covid-19.

The processing of accounts filed on paper for the 2019/20 financial year is, as a result, expected to take “significantly longer than usual”, it says, and is “strongly encouraging” online filing.

It added that, if accounts can only be filed on paper, they should be filed as early in December as possible. Paper accounts submitted too close to the 31 December 2020 deadline, which are then rejected, risk not having enough time to be corrected, re-submitted and manually checked. This type of late accounts will incur an automatic late filing penalty. 

HMRC will accept the coronavirus crisis as a “reasonable excuse” for a customer missing a filing date providing they clearly explain how they were affected in their grounds for appeal and submit the return as soon as they can. There is more information about this online.

6. Suggest Time to Pay if your clients/C-suite need it

If firms are struggling to pay taxes due on 31 January, payments on account due in July 2021, deferred VAT payment due on 31 March 2021, or corporation tax due in December 2020, they might benefit from HMRC’s Time to Pay scheme, which gives businesses more time to pay their tax bills.

7. Think about adjusting your fees

“If clients are struggling to pay their taxes, they might also struggle to pay your fees as it’ll hit them at the same time,” says Heynes. “Some agents might want to help clients through this difficult patch by giving them some leeway on fees.”

8. Relax (well, maybe)

Given the increased admin burden for accountants during January, AAT has suggested three ways HMRC might alleviate the burden of the 31 January deadline.

“Gathering information is less easy this year, as many clients will be focusing on their businesses and keeping customers happy, rather than [prioritising] tax,” says Heynes. “Combined with the difficulties of working from home, accountants have more work to do. HMRC might extend the 31 January filing deadline by a couple of months to give professionals more leeway.”

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.