February is the month of love, so what better time to fall in love with your finances? The final quarter of the UK tax year is here and it’s the perfect moment to show your business’s financial health some much-needed care and attention. Whether you’re a business owner or a bookkeeper, taking the right steps now will ensure you finish the tax year on a high note and avoid any last-minute rushes as the 5th of April deadline approaches.
In this blog, we’ll walk you through the most important bookkeeping tasks to focus on in February to keep your business finances on track, stay compliant with HMRC, and ensure a stress-free tax season. Let’s make 2025 the year you fall in love with your financial side.
1. Review Your Business’s Financial Health
It’s time to take stock of how your business has performed so far. Take a moment to review your profit and loss statement, balance sheet, and cash flow. These reports will help you understand where your business stands financially and highlight areas that need attention.
Tip: Pay special attention to your cash flow. The final quarter often involves various expenses and potentially slower payments from clients. Forecasting your cash flow now will help you avoid any surprises in March and ensure you can meet your financial obligations.
2. Get Ready for MTD for Income Tax (MTD-ITSA)
As we move further into 2025, businesses should be aware of the upcoming changes to Making Tax Digital (MTD), which will soon apply to Income Tax. Starting in 2026, MTD for Income Tax Self-Assessment (MTD-ITSA) will be required for sole traders, partnerships, and landlords with an income above £10,000 per year. Even though the full rollout isn’t until 2026, the government is running a customer testing phase starting this April…
If you haven’t already transitioned to MTD-compliant software, now’s the time to make the change. MTD-compatible software will help you meet these new requirements, and it will save you time and effort in the long run.
Tip: Start using cloud-based accounting tools that are already MTD-compliant, like Xero or QuickBooks, so you’re prepared well in advance of the changes.
3. Review Your VAT Returns and Registration
If your business is VAT-registered, ensure your VAT returns are up to date before the end of Q4. Double-check that all your VAT-inclusive expenses and sales are correctly recorded and that you’ve submitted your VAT returns on time.
Tip: If your business is close to the VAT registration threshold of £90,000 in taxable turnover, you’ll need to assess whether it’s time to register for VAT. Don’t wait until the last minute, as failing to register can result in penalties and interest.
Reminder: Your next VAT return will be due soon, so ensure all relevant documents are organised and ready for submission.
4. Take Advantage of Year-End Tax Reliefs and Deductions
With the tax year coming to a close, now is the time to review your tax deductions. There are a variety of allowances and tax breaks available, such as capital allowances on business assets or R&D tax relief if your business is involved in innovation or development.
Tip: Make sure you’re taking advantage of all available tax reliefs:
- Annual Investment Allowance (AIA): Claim up to 100% of the cost of eligible equipment and machinery.
- Research and Development (R&D) Tax Relief: If your business engages in qualifying research and development activities, you could be eligible for significant tax relief.
5. Plan Financially for the New Tax Year
As you prepare for the end of the current tax year, it’s also a good idea to set some financial goals for the year ahead. What do you want to achieve in the new tax year? Improving cash flow, reducing expenses, or increasing your revenue? setting clear financial goals will help keep you on track.
Tip: Use your financial reports to identify areas where improvements can be made. If cash flow was a challenge, consider ways to improve invoicing or secure financing options to support your business through the year.
6. Organise Your Records for HMRC Compliance
HMRC requires businesses to keep accurate records for at least five years after the relevant tax year ends. As we head into the final months of this tax year, ensure your financial records are well-organised and complete. This is essential for making tax filings easier, reducing the risk of errors, and preparing for potential HMRC audits.
Tip: Store all your receipts, invoices, and bank statements in a digital format, ideally using cloud-based software like Xero. This will ensure you stay compliant and have quick access to records when needed.
Make a date with us and we can fall in love with your finances together. Book a call and let us help you with a stress-free year ahead with our bookkeeping services.
