What Happens at Financial Year-End? A Guide for South African Business Owners
“Financial year-end” is one of those accounting terms business owners hear constantly.
But what actually happens when your business reaches it?
Your financial year-end marks the end of a financial reporting period. It gives your business a defined point at which its financial activity for that period can be reviewed and its annual financial information prepared.
It doesn’t mean the business stops operating, and it isn’t necessarily the same as the end of the calendar year.
Is every company’s financial year-end in February?
No.
A company’s financial year-end can fall in another month. SARS’s company income-tax guidance specifically caters for companies with financial years ending at different points during the year, including changes to a company’s financial year-end.
That distinction matters because several accounting and tax processes are calculated relative to your company’s financial year-end.
What happens to the accounts?
Before annual financial information can be finalised, the underlying accounting records need to be complete and accurate.
That can involve reviewing:
- income and sales;
- operating expenses;
- bank and credit-card reconciliations;
- debtors and creditors;
- assets and liabilities;
- loans;
- payroll records;
- VAT information where applicable; and
- transactions that still need supporting documents or explanations.
Adjustments may then be required before the financial statements are finalised.
What are annual financial statements?
Annual financial statements provide a structured view of the company’s financial performance and position for the reporting period.
For example, SARS says that where annual financial statements are compulsory with an ITR14 submission, they must at minimum include an income statement, balance sheet and notes to the financial statements.
The exact reporting requirements applicable to a business depend on its circumstances, so this is an area where professional advice can be important.
Does year-end mean your tax return is due immediately?
Not necessarily.
For companies, SARS currently requires the ITR14 company income-tax return to be submitted within 12 months after the company’s financial year-end.
However, don’t interpret that as meaning tax only matters 12 months later.
Companies generally make provisional tax payments during their year of assessment. SARS states that the first payment is generally due six months into the year and the second by the end of the year of assessment. A third/top-up payment may also apply.
This is why year-end tax planning and year-end tax filing are not the same thing.
What about CIPC annual returns?
This is another common source of confusion.
A CIPC annual return is not simply another name for your company income-tax return.
Companies and close corporations are required to file annual returns with CIPC. CIPC describes these as statutory returns used to maintain up-to-date company information and determine whether an entity remains active.
So depending on your business, you may have accounting, SARS and CIPC requirements that are related but distinct.
What should you give your accountant?
Rather than waiting for a long request list after year-end, start getting your records organised beforehand.
Your accountant may require information such as bank statements, invoices, expense records, loan information, asset purchases, payroll information and explanations for unusual transactions.
Exactly what is required will depend on your business and the state of your accounting records.
Your financial year-end should tell you something
Compliance is important, but year-end information should also help you answer practical questions.
Did the business grow?
Did margins improve?
Where is the money going?
How much do customers owe you?
What does the business owe?
What should change next year?
Good accounting isn’t only about telling SARS what happened. It should help you understand what happened.
Approaching your financial year-end?
NHB Business can help you get your accounting records organised, prepare your financial information and understand the next steps.
