GoForma Small Business Accountants

Small Business Accounting Support

Explore a range of small business accounting advice from preparing accounts, filing deadlines, dividends and help finding an accountant.

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How to Find an Accountant

Accounting is often one of the first aspects small business owners hand off when their business scales. 

But while you can delegate your accounting to a professional, it’s still important that you have a good grasp of the basics. With this knowledge, you can more easily stay on top of your day-to-day bookkeeping or accounting responsibilities, and communicate with your business stakeholders. 

There are a few key accounting terms and concepts you should know. 

The balance sheet and profit and loss statement are two important financial statements every business owner needs to review. The balance sheet provides a summary of a company’s financial condition, and reports its assets, liabilities and owners’ equity at a specific point in time. 

The P&L shows a company’s revenues and expenses. It also comprises other key elements like COGS, gross profit and net profit or loss.
The phrase “cash is king” rings true, particularly for small businesses. The cash flow statement, which indicates how much money is flowing in and out of your business is one that you should review on a regular basis. Optimising your accounts payable, staying on top of your accounts receivable and conducting in-depth cash flow analysis at least once a month are examples of steps you can take to improve your cash flow.

Preparing Annual Accounts

Your annual accounts are prepared from your company’s financial records at the end of the financial year. It must include:

All limited companies are required to file their annual accounts at Companies House each year. In addition, you’re required to send a copy of your annual accounts to all shareholders, individuals who attend your company’s general meetings, as well as to HMRC (as part of your company tax return).

There are several deadlines you need to take note of.

The deadline for filing your company accounts is nine months after your accounting reference date—or your company’s financial year end, while your company tax return must be filed 12 months after the end of your company’s accounting period for corporation tax. If you’re in your first year of trading, your annual accounts are due 21 months after you’ve registered with Companies House.

Keep in mind that if you fail to meet your deadlines, the penalties for late filing may range from £150 for filing under a month late, to £1,500 for filing more than six months late.

What are confirmation statements?

Limited companies and limited liability partnerships are required to file a confirmation statement (CS01) to Companies House each year. The document details information about a company’s capital position, ownership, management and activities, and helps verify that the information Companies House has about your business is up to date.

You can file your confirmation statement online, by post, or by using a third-party service (such as our GoForma accounting packages) to complete your filing. If you aren’t subscribed to our packages, completing your filing online will be your best option. It’s faster to complete the form online, and cheaper too—it costs £13, compared to the £40 fee for filing a paper form.

You’ll need to fill in the ‘additional information’ section of the form if there are changes to the following details of your company:

  • Standard Industrial Classification (SIC) code
  • Statement of capital
  • Trading status of shares
  • Exemption from keeping a register of people with significant control
  • Shareholder information

Keep in mind that even if there hasn’t been any changes, you still need to check the existing details to ensure that they’re accurate.

You need to file your Confirmation Statement up to 14 days after the due date—which is 12 months after the date your company was incorporated, or 12 months after the date you filed your previous Confirmation Statement.

We can’t emphasise enough on meeting your filing deadline. The penalties for late filing can be severe—your company and its officers could be prosecuted, with your company struck off the register.

What are dividends? Dividend tax rates and how to pay yourself dividends

As a sole trader, how you get paid is fairly straightforward—you pay yourself through personal drawings from your business.

If you’re running your own limited company, there are two main ways in which you can pay yourself: by taking a salary or drawing dividends.

As the director of a limited company, you’re also considered an employee. As such, any salary you draw will be paid through the PAYE scheme—similar to how other employees of the company will receive their pay. You’ll run a payroll, report to HMRC and receive your salary (after income tax, along with Class 2 and Class 4 NICs have been deducted at source).

Dividends are payments of profit that a limited company distributes to its shareholders, and typically paid out on a monthly or quarterly basis. Corporation tax isn’t levied on dividend payments; depending on the amount of dividends paid out, each recipient may have to pay dividend tax.

For the 2021/22 tax year the most tax-efficient salary will usually be £8,840 per year, which is the NI Secondary threshold amount. There are important tax implications you need to consider when you’re deciding on the amount you should draw as a salary. If you decide to draw a very low salary (or not at all), you risk missing out on maternity benefits, part of your personal allowance and pension entitlement.

Filing Deadlines

As a self-employed person or limited company director, staying on top of your filing deadlines is key. The last thing you’d want is to get into the bad books of HMRC, and incur unnecessary expenses like penalties for late filing.

The filing deadlines for sole traders are as follows:

  • Register for Self Assessment by 5th October after the end of the relevant tax year. For example, if you started operating as a sole trader on 30 April 2021, you’ll need to register for Self Assessment by 5 October 2022.
  • File your Self Assessment by 31st January following the end of the relevant tax year. If your tax bill falls under £3,000 and you want to complete your payment through PAYE, you’ll need to file your online return by 30th December.  
  • If you’re VAT-registered, you need to file your VAT returns 1 month and 7 days after your VAT quarter end date.

And if you’re running a limited company, the following filing deadlines will apply:

  • File your Self Assessment by 31st January following the end of the relevant tax year.
  • If you’re VAT-registered, you need to file your VAT returns 1 month and 7 days after your VAT quarter end date.
  • File your company accounts 9 months after your company year-end. If you’re in your first trading year, your first annual accounts are due 21 months after your date of incorporation
  • File your Confirmation Statement up to 14 days after the due date. The due date is 12 months after the date your company was incorporated, or 12 months after the date you filed your previous Confirmation Statement.

Accounting Terms

Accounting is often one of the first aspects small business owners hand off when their business scales. 

But while you can delegate your accounting to a professional, it’s still important that you have a good grasp of the basics. With this knowledge, you can more easily stay on top of your day-to-day bookkeeping or accounting responsibilities, and communicate with your business stakeholders.

There are a few key accounting terms and concepts you should know.

The balance sheet and profit and loss statement are two important financial statements every business owner needs to review. The balance sheet provides a summary of a company’s financial condition, and reports its assets, liabilities and owners’ equity at a specific point in time.

The P&L shows a company’s revenues and expenses. It also comprises other key elements like COGS, gross profit and net profit or loss.

The phrase “cash is king” rings true, particularly for small businesses. The cash flow statement, which indicates how much money is flowing in and out of your business is one that you should review on a regular basis. Optimising your accounts payable, staying on top of your accounts receivable and conducting in-depth cash flow analysis at least once a month are examples of steps you can take to improve your cash flow.

Small business & limited company accountant FAQs

When do you need an accountant?

As a small business owner, you’re always on the lookout for ways you can save money. Therefore, deciding whether you need to get an accountant can be a difficult decision—as that’s an additional cost that you’ll incur.

But managing your business financials well is central to your small business success—and that’s something that an accountant can help you out with.

If you’re still on the fence about this, here are questions that can guide you towards making a decision:

  • Do I have sufficient accounting knowledge and abilities? 40 percent of small business owners find that financial management is the most challenging part of running a business. So if you find yourself struggling with accounting concepts and bookkeeping systems, bringing in an accountant may be your best option.
  • Do I have time to do my own accounting? As your company grows, you may find that you’re spending increasing amounts of time managing your finances. But are you the best person to do this, and could the time be better spent on scaling your business?
  • Am I facing compliance and tax issues? If you’re faced with complicated sales tax issues, or are up against a HMRC tax investigation, it’s best not to wing it without an accountant.    
  • How much help do I need with my business accounting, and what value can they bring? Do you require a full-time accountant, part-time help or periodic consultations? Will you benefit from having an accountant help out with financial analysis, meeting your tax obligations and data management? Once you’ve identified your requirements, you can then choose an option that best meets your small business needs.
  • Am I in the process of forming my company? During the company formation process, you’ll need to make decisions that can have a long-term impact on your business—such as choosing your legal business structure, conceptualising your business plan and setting up an accounting system. An accountant can provide insightful advice, leaving you better placed to make a well-informed decision.

Selecting an accountant

Here are a few things to keep in mind when you’re selecting an accountant:

  • Look for relevant experience: Seek out an accountant who’s experienced with working with small businesses. It’s a bonus if they’ve worked with businesses who are of a similar business structure, size, revenue and industry. It’s also beneficial if they’ve worked with larger clients, as that is an indication they’ll be able to manage your accounts as your business scales.
  • Ask for recommendations: Your personal network is a valuable source of information. Reach out to friends and family who are small business owners, as well as your connections on social networks like LinkedIn or Facebook.
  • Do your research: There are a few things to look out for when you review a candidate’s LinkedIn profile: their past testimonials, qualifications and experience, as well as their personal connections (keep an eye out for candidates who have a strong personal network). Before you engage an accountant for his or her services, do a background check by asking to speak to businesses they’ve worked with.
  • Ask about their communication processes and reporting frequency: Regular communication is key—you want your accountant to review your finances and offer advice on a regular basis, and not just to provide support during tax season.

Best Accounting Software

When do you need accounting software?

Should you stick with your current accounting practices—or is it time to implement a new way of handling your accounting? Here are the signs that indicate it’s time to make the switch to accounting software:

  • Your business is growing
  • You need faster access to information
  • You’re spending increasing amounts of time on manual, repetitive tasks
  • You’re facing an increase in manual errors
  • You lack technical accounting skills
  • You lack a proper accounting system
  • You’re not able to comply with MTD requirements (if applicable)

Accounting & Limited Company Deadlines

VAT Returns deadlines

Most businesses need to submit their VAT return quarterly (this applies even if you don't have VAT to pay or reclaim). The deadline for submission is a month and seven days after the end of a VAT period.

Self Assessment deadline

Online returns must be filed by 31 January. Paper returns are due earlier, and must be filed by 31 October.

Company accounts deadline

As a limited company director, you’re required to file the following:

  • Annual statutory accounts: For your first year of operation, you need to file these accounts within 21 months of your date of incorporation. For subsequent years, these accounts must be filed within nine months of your Accounting Reference Date (ARD).
  • Company Tax Return (CT600): This should be submitted 12 months after your accounting year-end.

Unlike limited company directors, sole traders aren’t required to file accounts with a public body.

Small business accounting terms you should know

Cashflow

Cash flow refers to the total amount of money that is moving in and out of your business.

Balance Sheet

The balance sheet shows how much a business owns (assets), owes (liabilities) and the amount that is left over for its owners (owner’s equity) at a point in time.

Profit & Loss

The P&L is a financial statement that shows how much money your business has made or lost.

Dividends

Dividends are a payment of profit that a limited company distributes to its shareholders. It is the money remaining after all business expenses and liabilities, as well as outstanding taxes (including VAT and Corporation Tax) have been paid off.

Year End Accounts

At the end of a business’ accounting year, limited company directors are required to file the following...

  • With HMRC:
  • Company tax return (CT600)
  • Annual statutory accounts
  • Director’s report
  • With Companies House:
  • Statutory accounts (full, abbreviated or micro)

Directors Loan Account

A DLA is is a record of all transactions between the company and its directors. It records not just the money owed by the directors, but also the money owed to them. At the end of the financial year, the amount is recorded in the balance sheet either as an asset or liability.

Benefits in Kind

Benefits in kind are benefits provided to a director or employee that aren't included in their salary or wages. These can be assets or services, such as company cars, private health insurance or non-business travel and entertainment expenses.

Self Assessment Tax Returns

Self Assessment is a tax return form that businesses need to submit to report their annual earnings to HMRC. The term ‘self assessment’ refers to the fact that it’s the individual’s responsibility to work out how much tax they should pay.

Self Assessment Payments on Account

Payments on account are advance payments for your tax bill that are spread out across the year. You'll need to make two payments each year, and these are due on 31st January and 31st July.

P11D Form

The P11D form is a tax form that records employment benefits that the employees and directors of a company have received across the year.

Holiday Pay

Holiday pay is calculated based on a week's pay. The calculation will vary, depending on the kind of hours an employee works (fixed hours, shift work with fixed hours or no fixed hours) and how they are paid for the hours. We’ve elaborated more on this, as well as payment for overtime and commission in a separate article.

Entrepreneurs Relief

Entrepreneurs' Relief is a scheme that reduces the amount of Capital Gains Tax payable when you dispose of (sell) shares in your business. You pay a reduced tax rate of 10%— instead of the usual rates—on the first £10 million of gains. There isn't a limit to the number of times you can claim.

Small business cash flow

Optimizing cash flow

‘Cash is king’ is an adage that holds true—particularly when it comes to small business finances. Even profitable companies are faced with the threat of closure, if negative cash flow becomes a regular occurrence.

Keeping a firm grip on your cash flow is key, and we’ve outlined a few tips you can implement:

  • Stay on top of your accounts receivable: Late payment is a common problem faced by all businesses, but small business owners can be the hardest hit. It’s critical to stay on top of your accounts receivable, so that you’re better able to minimise delays in receiving your payments. Steps you can take include following invoicing best practices, structuring your payments by milestones and requesting for deposits if you’re fulfilling large orders.  
  • Optimise your accounts payable: Keep your cash flow healthy by maximising the potential of your accounts payable. Steps you can take include building positive vendor and supplier relationships (this is key to improving problems like late payments), as well as taking full advantage of payment terms.
  • Keep a close watch over your cash flow: Blaine Bertsch, CEO of financial forecasting tool Dryrun advises small business owners to update their cash flow projections “every time something happens in their business that affects their cash flow”.
  • Avoid expanding too rapidly: Small business owners should guard against overly quick growth, as this can create pressure on their cash flow. Business owner Tim Berry shares about his experience on Entrepreneur.com, where his business experienced doubled sales and nearly went broke.

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