Could you do the accounting for a limited company? The immediate response from most people would be a resounding “Absolutely not!”
The very thought of tackling receipts, paperwork, calculations and taxes doesn’t bear thinking about. However, if you have some prior experience in accounting or bookkeeping and you are confident in your ability to deal with your business finances, you may wish to do your own accounting instead of hiring an accountant.
Sole traders usually have quite simple accounting requirements. Limited companies and limited liability partnerships (LLPs), on the other hand, are faced with more complex accounting and filing requirements.
If you fall into the latter category, you must be absolutely certain that you are able to carry out the required tasks properly, otherwise, you could be faced with considerable penalties from HMRC and Companies House.
Accounting for a limited company
If you are running a limited company, all business income, expenditure, assets and liabilities must be accurately recorded, fully disclosed, and traceable at all times. Your annual financial accounts must be ‘true and fair’, and all business records have to be kept for a minimum of six years from the end of the accounting period to which they relate. Your accounting records must reflect this and provide details of the following:
- All money the business receives and spends.
- All assets owned by the business.
- Any debts the business owes or is owed.
- Inventory of stock owned by the business at the end of its financial year.
- The stock takings used to work out the stock inventory.
- All goods bought and sold by the business.
- Who these goods were bought from and sold to, with the exception of retail trade.
You will use these financial records to prepare full (‘statutory’) annual accounts, file Company Tax Returns, and pay corporation tax on all taxable income. If your company’s annual turnover exceeds the Value Added Tax threshold (currently £85,000 for the 2020-21 tax year), you will also have to file VAT returns and pay VAT bills every quarter.
About limited company statutory accounts
Company accounts are due every year, regardless of whether a company is active or dormant. You must file annual accounts with Companies House within 9 months of the accounting reference date (ARD). This is usually the anniversary of the last calendar day of the month in which your company was registered.
Statutory accounts must adhere to either International Financial Reporting Standards or UK Generally Accepted Accounting Practices, and they should include the following:
- A balance sheet (details of the value of everything owned by and owed to a company on the last day of its financial year).
- A profit and loss account (this provides details of a company’s sales, running costs, and the profit or loss it has made over the financial year).
- Any notes pertaining to the accounts.
- Director’s report.
- Auditor’s Report (unless your company qualifies for audit exemption).
Dormant companies are required to prepare dormant company accounts (balance sheet and notes) for Companies House. There is no need to file accounts with HMRC unless a company becomes dormant after a period of activity.
About Company Tax Returns and corporation tax
Your company’s accounting period will determine the deadlines for filing Company Tax Returns and paying corporation tax. This period will usually begin when your business activities commence, and it will normally end on the company’s ARD.
Your Company Tax Return should be filed within 12 months of the end of the company’s financial year. HMRC requires all Company Tax Returns to be sent online. You must include form CT600, corporation tax calculations and full statutory accounts.
You will be required to include information about capital allowances, gains on assets, directors’ loans, and any losses being carried forward from the previous accounting period.
HMRC penalties for late filing
HMRC will use all of this information to work out how much corporation tax your company owes. The deadline for paying corporation tax is 9 months and 1 day after the end of your company’s financial year. Be aware, your tax payment is due before your tax return is filed.
If you possess the knowledge and aptitude to do your own accounting, you should be able to avoid any penalties. If you are in any doubt about your ability, we strongly advise using an accountant or tax adviser. This may be an extra expense you’d rather avoid but it can be a false economy to do your own accounting if you don’t know what you’re doing.
- Late annual accounts incur financial penalties from Companies House, ranging from £150 – £1,500. These fines will double if your accounts are late for two consecutive years.
- If you fail to file your accounts and make no effort to resolve the situation, you could be personally prosecuted and fined up to £5,000.
- If your tax return is late, HMRC will impose penalties ranging from £100 – 10% of any unpaid tax. Tax returns that are late 3 times in a row will incur a minimum fine of £500.
Finding a suitable accountant for your small business
Think about the nature of your business first of all: many accountants specialise in certain industries and professions, so it is worthwhile looking for an accountant that understands the type of business you run.
For many small businesses, a big accountancy firm that deals with large corporations would be an unlikely choice. You would be better to source an independent accountant who works predominantly with small businesses. This should ensure you receive equal treatment and don’t pay unreasonable rates.
Having a good relationship with your accountant is key. You need to trust them and their ability to do the job properly. A well-known accountant does not necessarily mean they will be good, so be sure to check that they are well-known for reputable reasons! It can be useful to ask friends and trusted acquaintances for recommendations, but don’t rely solely on someone else’s word – make sure you also carry out independent research on the accountant you are considering.
Not all accountants require Chartered status, and an accountant without these qualifications may be just as good; however, for your own peace of mind it may be worth choosing one that has completed the rigorous professional training required by one of the following organisations:
- Institute of Chartered Accounts in England and Wales (ICAEW)
- The Institute of Chartered Certified Accountants of Scotland (ICAS)
- Chartered Institute of Management Accountants (CIMA)
- The Association of Chartered Certified Accountants (ACCA)
- Chartered Institute of Public Finance and Accountancy (CIPFA)
If you use a Chartered Accountant, you can be sure their knowledge and training is up-to-date and closely monitored. In the event of your company requiring an audit, you will have to use a Chartered Accountant who is registered as an auditor.
Compare costs and fees of different accountants; don’t just go with the first one you find. If you are new to using the services of an accountant, you may not be aware of the costs. Take some time to get some quotes before making your decision. High prices do not always mean better service. Likewise, low costs do not always result in value for money.
Will you pay an accountant fixed monthly fees or variable fees, as and when work is done? Many accountants offer different fee structures, so make sure you ask about payment options. If you choose a pay-as-you-go type service, you can easily keep track of all of the work you are paying for. On the other hand, these costs could quickly mount up if you do not keep an eye on everything you are being charged for.
You may also be able to save some money by carrying out some simple bookkeeping tasks and maintaining a record of your expenses. This could save your accountant a great deal of time and, in turn, you could save yourself some money.
Organise a meeting
Upon finding an accountant that you would like to use, arrange a meeting and prepare a list of questions to ask. Make sure you are aware of all of your obligations and are happy with the services on offer. This initial meeting presents an opportunity to get to know the person you will be dealing with and make a more informed decision.
Need any help?
If you would like to be put in touch with a reputable accountant, we would be happy to help. Simply add ‘Introduction to an Accountant’ to your basket during the online company formation process; alternatively, you can call us or send us a request using our online Contact Us form. We will endeavour to have a chartered accountant call or email you within 48 hours.