This section answers questions that many small businesses have about the complex subject of accounts. We answer questions about the information that your accounts should include, and how and when you should file your accounts. We also explain the importance of receipts, your registered business address, and the different types of expenses you, or your employees, might be able to claim.
How often do I have to do my accounts?
Sole trader accounts need to be filed every year on your Self Assessment tax return. You will have to pay Income Tax and National Insurance contributions on your profits. Your Self Assessment tax return will need to be filed by the end of January following the end of the tax year in which your accounts end. Tax years run from 6th April to 5th April.
Year End Self Assessment Filing Date
31st March 2016 31st January 2017
31st October 2015 31st January 2017
31st October 2016 31st January 2018
There are special rules for when you start up a sole trader business. The first year is taxed on the profits between the start of the business and the end of the tax year. If the accounting period is 12 months or less then for the second year tax is paid on the profits of the first 12 months’ trading. Once you get to year three, from then on tax is paid on the profits of the period ending during year three’s tax year.
Limited Company Accounts
Every limited company has an accounting reference date which determines its financial year end. It is also the date that determines when accounts are due for delivery to Companies House and when tax returns need to be filed.
Deadline (time after financial year end)
Accounts to Companies House 9 months
Pay HMRC Corporation Tax 9 months & 1 day
Corporation Tax return to HMRC 12 months
What information is included in my accounts?
A summary of business income and expenses is included in your accounts. This is traditionally done by recording income and expenditure by the date you were invoiced or billed. The cash method can be used for businesses with turnover of £150 000 or less, where you record income or expenses when you physically receive the money or pay the bill. This information can be kept on a spreadsheet or by using accounting software. You must keep the supporting documentation to back up each business transaction.
These accounts are for HMRC only.
As with Sole Trader accounts, a summary of business income and expenses is included and is called a Profit and Loss Account. Since the company is limited, there are extra reporting requirements to Companies House. Accounts must be set out with strict disclosures depending on the size of the company. You are typically required to construct accounts containing: your Profit and Loss Account and your Balance Sheet, with further explanatory notes explaining specific items.
These accounts go to both HMRC and Companies House.
Should I always keep receipts?
You need to keep proof that your purchases are genuine business expenses. Proof can include
receipts and bank statements. Electronic copies can be made.
If you are VAT registered
You must keep all invoices for items you buy. If you are claiming VAT the invoices must contain all the information required by HMRC to be disclosed.
What items should I list as expenses?
HMRC allows revenue expenditure to be deducted from your income only if it is wholly and exclusively for the purposes of your business. Examples include:
- Office costs – stationery, phone bills
- Travel – fuel, parking, train or bus fares
- Clothing expenses – uniforms, protective clothing
- Staff costs – wages, salaries, subcontractor costs
- Stock and raw materials
- Financial costs – insurance, bank charges, interest on business loans
- Premises costs – heating, lighting, business rates
- Promotional costs – advertising, marketing, website costs
If you use traditional accounting methods, you can also claim Capital Allowances on capital items, for example: equipment, machinery, business vehicles. If cash accounting methods are used, Capital Allowances are only claimable on cars, with other items being claimed as allowable expenses in the normal way.
How long do I need to keep accounting records for?
HMRC may request to see your accounting records. You need to keep them for at least 5 years after the 31st January deadline.
Records must be kept for at least 6 years from the end of the last financial year they relate to. If the company has bought equipment or machinery that is expected to last more than 6 years, then this documentation needs to be kept for as long as it is in use.
What should my limited company’s registered address be?
It is the address where all official documents are sent with the guarantee that the directors will see them.
The registered office address needs to be:
- In the country that your business is registered in
- A physical location that can be visited
If the business doesn’t have it’s own premises, you can use your home address or use a company that offers a Registered Office service.
When does my company year start?
The first day of trading for a limited company is the day the Company was set up. The company’s accounting reference date is automatically set as the end of the month the company was set up. For example, a Company was set up on the 20th July 2016. The first accounts need to be prepared for the period ending 31st July 2017.
Does an accountant have to check my accounts?
No, businesses can, if they choose, do the accounts and various tax returns without an accountant. There is no legal requirement to have one. However, this is only advisable if you are confident with all the tax and accounting rules, regulations and laws that you need to comply with. As a business becomes more complex, for example, Limited, then the rules and regulations increase in complexity.
What is a legal charge?
A legal charge is the right that an organisation that lends money, has to take someone’s property, if that person does not pay back the money they borrowed to buy the property.
What is the London Gazette?
The London Gazette is one of the official journals of record of the British government, and the most important among such official journals in the United Kingdom, in which certain statutory notices are required to be published.
The London Gazette is published each weekday, except for Bank Holidays. Notices of corporate and personal insolvency information are required to be displayed in this publication.