101 Guide to Accounting for Small Businesses in the UK

The question for all small business owners is: What Are My Accounting Responsibilities?

Suppose you are considering or have already formed a limited company in the UK. In that case, you are undoubtedly aware that you have a legal responsibility to submit your annual accounts to the Inland Revenue.

However, the best course of action is to pass this crucial duty on to an experienced accountant who can do this on your behalf.

Instructing An Accountant In The Early Stages

It is not uncommon for some small business owners to go against the idea of instructing an accountant, particularly in the early stages.

There is also a percentage of company directors who feel that the only purpose accountants serve is to fill in tax forms. Yet, if you instruct a competent accountant, he or she will save you money, time, and stress.

Most people shy away from the thought of having to plough their way through a massive amount of paperwork and countless receipts – not to mention having to look at and work out complicated tax structures and calculations, all of which have to be conducted correctly and in adherence with the Inland Revenue regulations.

Doing your annual accounts is fine if you are experienced in bookkeeping or accounting and are a sole trader.

In the case of the latter, the procedure is straightforward. Conversely, your filing and accounting procedures are more complex if you have an LLP (limited liability partnership) or limited company. To that end, as a company director, you have to be fully confident that you can undertake this obligation; if you are not, then you could be faced with having to pay stiff penalties.

Ltd Company Accounting

In the case of a limited company formation, there must be a completely accurate record of all income going into the business, receipts for all expenses, and a fully disclosed form of all liabilities and assets, which should be easily traceable.

The company’s yearly accounts must be considered ‘true and fair,’ you must maintain all your financial records for at least 6 years from the related accounting period’s end.

In a nutshell, your financial records should reflect and provide details of:

• All money received & spent
• All assets the business owns
• All debts owned by or owed to the business
• End of financial year business product inventory
• Stock-taking is utilised to calculate the stock-inventory
• All goods the firm has purchased & sold
• The person/company the items were sold to & purchased from (retailers are exempt from this)

The above records are needed to prepare yearly accounts, file tax returns for the company, and pay corporation tax on all income classed as taxable income.

Further, your company must file a VAT return and pay quarterly VAT bills if your annual income exceeds £85,000.

Statutory Accounts For Ltd Companies

Many people do not realise that even if your company is not trading, company accounts must still be submitted yearly.

Further, the yearly accounts must be filed at Companies House within nine months from the accounting reference date.

Statutory accounts need to comply with the International Financial Reporting Standards and must incorporate the following:

• A document (which shows the amount of all that is owed to and owned by the company on the final day of the financial year it uses)
• An account showing profit & loss (comprising the company’s annual profit/loss, running costs & company sales
• Any notes which are relevant to the accounts

An Auditor’s Report

You must file an Auditor’s Report unless your company is eligible for an audit exemption. You will, however, only need to provide shortened accounts (notes and a balance sheet) for Companies House if your company’s income is under £6.5 million per annum. It is, nonetheless, mandatory to provide complete statutory accounts for the Inland Revenue and shareholders.

If your company is inactive, it is still a legal requirement to prepare your accounts for Companies House (this should comprise notes and a statement of the balance of funds). Filing reports with HMRC is unnecessary unless a company becomes inactive after a period of activity.

Corporation Tax and Company Tax Returns

You must file your company’s tax returns and pay corporate tax during your accounting period. This usually starts when your business activities begin and finishes on the company’s anniversary date.

Filing must be done within twelve months after your company’s financial year ends. The Inland revenue necessitates that this is done online. You also have to ensure that you submit form CT600, your complete statutory accounts, and corporate tax calculations.

Other data that must be provided includes loans taken out, assets that have made gains, any losses you want to include from the former tax year, and any data regarding capital allowances.

HMRC Late Filing Penalties

The corporation tax deadline is 9 months plus 1 day from the end of your company’s financial year, although your tax payment must be submitted before filing your tax return.

Fines can range between £150 to £1,500 if you submit your yearly accounts to Companies House late for the first time. If you repeat this the following year, these figures double.

Additionally, if you do not file on time and do not ameliorate the situation, you could face a personal prosecution with a draconian fine of as much as £7,500.

Moreover, the Inland Revenue can fine you between £100 to 10 per cent of the sum owed. If you do this thrice, you must pay at least a £500 penalty.

Tackling Tax Returns the Best Way Possible

Having read about all the complexities, mandatory procedures and unwelcome penalties, you have probably concluded that finding a suitable accountant is the best way forward.

Tips on Finding the Right Accountant For Your Needs

The first thing to consider is the type of business you operate and look for an accountant within that field. If they specialise in the same industry, that will be a big plus.

Naturally, it would be unwise to contact an extensive accountancy practice which specialises in big corporations, as not only would it be prohibitively expensive, they would not have expertise in your field. There are many reasonably priced independent accountants whose central field is helping small businesses.

Try to look for:

• An accountant who you can have a good rapport with
• Someone who you find trustworthy
• An accountant who has good client reviews
• Someone who had been recommended by another small business
• An accountant whom you have independently researched

What Qualifications Should the Accountant Have?

The best recommendation is to only consult an accountant member of a recognised government association for Chartered/Management accountants.

Consulting the latter guarantees that his or her training and accounting knowledge (such as recent changes in regulations) is current. Should you require a company audit, you must ensure they are also officially listed as auditors. While deciding on who to consult, be sure to consider doing the following:

• Do some research on several suitable accountants, and find out their standard fees and other charges by asking for quotes
• Many accountants offer flexible fee options, so ask for the list. Also, you should decide whether to pay an unfixed fee once the accounts are completed or if you would instead spend a fixed price every month.
• Be mindful that pay-as-you-go style services enable you to keep tabs on the services you are being billed for and that if you’re not monitoring what is being done, the charges can swiftly build up.
• Try to maintain an up-to-date company expense record and some essential bookkeeping duties to help save on the accountant’s charges.

Making an Initial Appointment

You will find that most accountants do not charge for a preliminary meeting to discuss your needs and ask questions. Prepare a list of what you want to ask before you go, and take along various documents, such as a copy of your company registration and bank details.

This is a crucial meeting, as you may find that you do not have any rapport with the accountant or that he or she does not fully answer your questions.

In this case, you can book a meeting with another one. Bearing in mind that you may be using their services for many years, you want to feel happy about your choice and able to call upon them whenever you need to.

If you find several suitable accountants through internet searches, once you have received details of their fees and are satisfied with the same, you could always make appointments with all of them. The choice is yours!

Final Thoughts

As time progresses, there will be changes to the requirements. Visit the official UK small business guide for updates.

Keen to read more helpful articles?  See this post of accepting crypto payments in your business.