Woman sat at desk with laptop

Contents

  1. 1. Why do I need accounts as a small business?
  2. 2. How do I know if I am a small company?
  3. 3. What are accounting records?
  4. 4. How do I file my accounts at Companies House? 
  5. 5. How long do I need to keep records for?
  6. 6. What are the different types of accounts?
  7. 7. When is the deadline to file my accounts?
  8. 8. What happens if I do not submit my accounts?
  9. 9. What if my accounts are lost or stolen? 

Why do I need accounts as a small business?

June 29, 2021
Running a small business is liberating. Nothing beats the start-up buzz of bringing your entrepreneurial vision to life. However, as with everything worthwhile, there are many responsibilities that come with running your own small business, including keeping accounts.While anyone can create and file their own accounts, most small business owners outsource that process to save themselves time and hassle. This article will focus on what doing the accounts yourself means. In this article, we cover everything you need to know on owning accounts as a small business, and how to run them smoothly.

Why do I need accounts as a small business?

Let's start by debunking the myth that all small businesses are required to keep accounts. As a sole trader, you do not need to do this. However, if you are a limited company, you do need to keep and send accounts to Companies House.Sole traders submit a tax return each year after registering to HMRC, returning figures on their income, expenses and profit and loss. Limited companies are legally required to register with Companies House and must prepare accounts notifying Companies House of important information and any developments, such as new directors joining the company. Without accounting records as a limited company, you could be fined £3,000 by HMRC or even disqualified as a company director.The good news is that we're here to take you through exactly what you need to know when keeping and sending accounts to Companies House as a limited company.

How do I know if I am a small company?

As a small company, you can choose to disclose less information than medium and large companies as per the Companies Act 2006. In the eyes of HMRC, to qualify as a small business you'll need to meet at least two of the following criteria: 
    An annual turnover of £10.2million or less50 employees or fewer£5.1 million or less on the balance sheet
If you meet two or more of these options, then it is important for you to keep accounts as a small business.

What are accounting records?

Accounting records are key financial information about a company, from the documentation of financial statements (which detail financial performance) to records of invoices and receipts. For example, accounting records include entries of all business expenses and a record of the assets and liabilities of the company. Even if you are not trading, it is still important to keep accounting records.These accounts are filed and then sent to Companies House so that HMRC can verify your corporation tax returns against your accounts to ensure you are paying the right amount of tax.If your business involves dealing in goods, such as a small catering business, then your records will also include information such as:
    statements of stock held by the company at the end of each financial yearstatements of all goods sold and purchased, including the goods, the buyers and the sellersstatements of stock takings
For example, if you happen to run a small antique store, your stock records will include a list of the products, the customers who bought them and the sellers from whom you get your stock.Let's go into a little more detail on exactly what accounting records include.

Records about the company

As well as tracking the company finances, you need to keep a record of other important information about the company, with a few examples listed below:
    changes in directors, shareholders and company secretariesresults of any shareholder votes and resolutionsany transactions when someone buys shares in the companydebentures (repayment of loans at specific dates and who they must be paid to)indemnities (promises of payments your company will make in the event something goes wrong and it is the company's fault)any loans or mortgages secured against the company's assets

Accounting records

Accounting records include information on how the money is spent within the company, along with details on stock, assets and debts. The information you need to gather for accounting records include:
    details of assets owned by your companyany debts owed by or to your companyinformation on business finances and all money received and spent by your company, including grants. For example, payments from coronavirus support schemes figures on all the goods bought and sold and unless you are a retail business, who you sold them tostock your company owns at the end of the financial yeartaking account of the quantity and quality of the inventory on hand

Financial records

Financial records include information such as invoices and payslips, covering:
    all the money both earned and spent by the company, such as supplies and client invoicesemployment records, such as payslips and P60'sany VAT record keeping requirementsany other relevant documents, such as bank statements

People with Significant Control (PSC)

It is important to keep a register of People with Significant Control (PSC). It is important to document this even if you do not have a PSC within your company. A PSC register refers to anyone who has more than 25% shares or voting rights within your company, can appoint or remove a majority of directors or someone who can influence or control your company. 

How do I file my accounts at Companies House? 

Using the Companies House online filing service makes the process of sending your accounts a relatively easy one. You can use the online filing service to send over dormant company accounts and micro-entity accounts.To fully streamline the process, you can use Ember to send accounts over to Companies House. On the Ember App, your real-time accounts are displayed and will be open, ready to add and amend, until they are submitted to Companies House. This means your accounts are submitted within the deadlines without you having to physically log onto the online filing service and submit all your accounting records yourself.

How long do I need to keep records for?

If you are a private company you will need to keep accounting records for 3 years from the date they were made, whereas public companies must keep a record for 6 years.There are certain situations where you do need to keep records for 6 years from the end of the last company financial year. These include if: 
    you have records of transactions that cover more than one of your company's accounting periodsyou've purchased products that are expected to last more than 6 years, such as specific equipment or machinery (for example, if you are running a small gym and bought gym equipment)you sent your Company Tax Return past the deadlineHMRC are conducting a compliance check into your Company Tax Return
As mentioned, you are able to record all of this information on the Ember App in real-time. This means you can automatically log any changes that are happening within your company.  These will remain open until you are ready to submit them over to Companies House, ensuring that you don't miss a deadline or important information.

What are the different types of accounts?

Depending on how small your business is, there are specific ways for your to file your accounts.

Micro-Entity accounts

Micro-entities are for very small businesses and do not require you to prepare a directors' report. In order to consider your business as a micro-entity and to file your accounts in this way, you will meet two of the following criteria: 
    your maximum turnover is £632,000 your maximum balance sheet is £316,000 your maximum number of employees is 10

Abridged Accounts

Abridged accounts are suited to small businesses as they disclose less information than full accounts, including a simpler balance sheet. In order to file your records as abridged accounts, your company must: 
    have a turnover of £10.2 million or lessyour balance sheet total is no more than £5.1million a maximum of 50 employees.

When is the deadline to file my accounts?

The time normally allowed for sending your accounts over to Companies House differs between private and public companies. If your business is a private company, then the deadline is usually 9 months from the accounting reference date, whereas if you are a public company you will need to deliver your accounts 6 months from the accounting reference date. 

Filing Company's First Accounts

When filing your company's first accounts covering a period of more than 12 months, the deadline to get them over to Companies House differs slightly. Regardless of whether you are a private or public company, you will need to send your accounts over within 3 months of the accounting reference date. However, you can also send your accounts within 21 months of the date of incorporation as a private company, and 18 months as a public company. The deadline is also calculated to the exact day. For example, if you have a private tutoring company and the incorporation date is on 1 January 2020 with an accounting reference date of 31 January, you then have until midnight on 1 October 2021 to deliver your accounts, as this is 21 months from the date of incorporation.

Accounting period 

The time covered by your Company Tax Return is your accounting period for Corporation Tax. This time frame cannot be longer than 12 months and in most cases is the same as the financial year covered by your company. Your deadlines for paying Corporation Tax and filing a Company Tax Return are affected by your accounting period. Once you register your company for Corporation Tax, you will receive a letter from HMRC giving you dates for your accounting period. 

What happens if I do not submit my accounts?

You are always able to apply for extra time to extend your filing deadline should an unplanned event delay you filing your accounts. If you feel you do need extra time, it is always worth applying in order to avoid any penalties.However, if you do fail to submit your accounts you risk your company being taken off the register and dissolved. In this case, all the assets of your company could become the property of the Crown. It is a legal requirement to submit your accounts, and failure to deliver documents is a criminal offence, leading to a potentially unlimited fine for each offence and a criminal record.Additionally, if you file your accounts late, a penalty for late filing will be imposed on your company, with the amount varying between how late you are and whether your company is private or public. For example, handing your files in one month late means you will be fined £150 as a private company and £750 as a public company, with fees going up to £7,500 if you are late by more than 6 months as a public company. For this reason, it is useful to use accounting tools, such as Ember, not only to help you organise and keep your records but also to get them over to Companies House before the deadline effortlessly. 

What if my accounts are lost or stolen? 

Accidents happen all the time, and Companies House is aware of this. The first thing to do if your accounts are lost or stolen is to let the Corporation Tax office know. If you are unable to replace your records after being lost, stolen or destroyed, then you can either do your best to re-create them or include this information in your Company Tax Return. With Ember, you can confidently file your annual accounts with ease. By combining the accounting software with the accountant, you can rest assured knowing that your small business accounting is in safe hands, with our team of qualified accountants always on hand to offer support and guidance as you navigate your new business venture.
Rachel Cameron-Potter
Rachel Cameron-PotterContent Marketer

You might also like

Freelancer working from home office | A Complete Guide to National Insurance

Rachel Cameron-Potter

·

Startup

The Complete Guide to National Insurance

Female-led startup employees brainstorming around a table | What is a VAT receipt?

Ellie Perkins

·

Startup

What is a VAT receipt?

Freelancer on the phone at wooden table | How to find work as a freelancer

Rachel Cameron-Potter

·

Freelancer

How to find work as a freelancer

Don’t take our word for it.

Try Ember for free.

With our super software and talented team of qualified accountants, taking care of your business admin has never been easier. Try us free for 14 days today.

Ember