5 Rivers Accountancy

31 December Ltd Companay Year end, The simplest way to defer tax.

Here's how, Your company is taxed on ACCRUED income, not cash received.

If you invoice on 31 December, that income counts in THIS year.
If you invoice on 1 January, that income counts in NEXT year.

Same work. Different tax year. Huge impact.

Example: Agency with ongoing projects
You have 5 projects completing in late December.
Total value: £75,000

Option A: Invoice all on 30 December
£75,000 taxable this year
Tax @ 23%: £17,250 due September 2026

Option B: Invoice all on 2 January
£75,000 taxable next year
Tax @ 23%: £17,250 due September 2027

You keep £17,250 in your business for an extra 12 months, what you can do with that

When this works best:
✓ Ongoing retainer clients (you can legitimately bill early or late)
✓ Projects that span year-end (invoice when complete)
✓ Ad-hoc consulting (flexible timing)
✓ Products delivered in January (invoice on delivery)

When this doesn't work:
✗ Monthly billing arrangements (must bill monthly)
✗ Completed work in December (should recognise in December)
✗ Contractual billing dates (must honor contract)
✗ If cash flow critical (need the money now)

What to do RIGHT NOW:
1. Review your December invoicing schedule
What's planned for 31 December?
Can any legitimately move to 1-2 January?
2. Check client contracts
Any flexibility on billing dates?
3. Review work completion dates

What's genuinely completing in 2026, over to you!

Peter wanted to make £50,000/year.

I pulled up a spreadsheet and showed him exactly what he needed to do.

Here's how:
Work backwards from your goal.
Money needed personally: £50,000

-Add personal tax (assume higher rate): £50,000 ÷ 66.25% = £75,472 in dividends needed
-Add corporation tax: £75,472 ÷ 75% = £100,629 profit before tax needed
-Add overheads (Peter's are £70k): £100,629 + £70,000 = £170,629 gross profit required
-Peter's gross profit margin: 40%
-Sales needed: £170,629 ÷ 40% = £426,573 in annual sales
-Peter's average sale: £900
-Jobs required: £426,573 ÷ £900 = 474 jobs
-Peter's conversion rate: 50%
-Leads required: 948(18/week)

Peter now had clarity:
To make £50k/year personally, he needs 18 leads per week.
That's it. That's the number.

Then we went further...
What if Peter could improve his variables?
Scenario: Small improvements

Reduce cost of sales by 10%
Increase average price by 10%
Improve conversion rate by 10%

Result:
Peter could now draw an additional £52,581 from his company.
He'd double his income without needing a single extra lead.
This is the power of working backwards:
Most business owners set vague goals:

"I want to grow"
"I want to be successful"
"I want to make more money"

But they never define:

How much exactly?
What does that require?
How do I get there?

Peter now knows:
18 leads/week = £50k/year take-home
Or improve margins/prices = £100k/year take-home
He has a roadmap. Not a wish.
Your turn:
What do YOU want to make personally?