Accounts are required by different dates depending on the entity. Most small – medium entities don't have specific requirements. The most common exception is trusts. They had to prepare them within six months of the year end. This was changed so they now have a full year – BUT most trust deeds were done when six months was required and most still specify that. If so, that will still be the case.
All entities with taxable income have to file tax returns with IRD and that is the key driver for most accounts. Accounts are used to prepare an IR10 summary in a form IRD can process. Assuming a year end of 31 March, IRD requires returns by 7 July. If you can't file your tax return by the due date you can apply for an extension of time (EOT) to file it. Returns due by 7 July (for businesses with a 31 March balance date) can have an extension of time (EOT) granted up to 31 March the following year.
An EOT arrangement can be granted if:
- a customer is linked to a tax agent and the tax agent has an EOT for all their clients, (so our clients don't need to apply) or
- a customer without a tax agent applies for an individual EOT.
Requests for an EOT should be made before the due date or before the expiry of an existing EOT (if you already have one). If you don't file your tax return on time and haven't contacted IRD, you will incur a late filing penalty. The extension of time also delays terminal tax due dates from 7 February to 7 April.
Extension of time is essential for accountants. There is no way we'd be able to complete all accounts by 7 July. However, there is a common problem with this practice. Too many clients treat 31 March as their deadline, leaving no time for us to do our magic. And by magic, I mean getting questions answered so we can prepare accounts and tax returns, and then check what we've produced. Inevitably the latest clients also have the most unanswered questions.
Traditionally we assumed the lateness of clients getting their information to us was due to a desire to delay getting billed. That was a key factor behind our asking clients to pay in advance by A/P. Sadly that made no difference to this issue - although it does allow the fee to be claimed in the year paid rather than the usual claim when billed.
Our fee is based on everything being ready to go – including completed and signed questionnaires. We require them before we start a job. It is well recognised among accountants that every time we pick up a job a second time, we lose money on it. So it's vital from our perspective to get everything up front.
But why should you want your accounts and tax returns done as early as possible?
- Recall answers easier when the accountant asks
- Investigate and deal with issues as early as possible, which also means you don't have up to an extra year's changes to make to fix the same error the following year.
- Plan for tax bills well in advance.
- Take action on unfavourable trends you haven't identified from management reports.
- Reduce your effort (and cost) required to complete the work.
I don't know what your reasons are but if you have some other reasons please let me know - I'd love to add to this list. Everyone should really want their accounts done ASAP.