How to Prepare for Your Company’s Annual Accounts
From legal requirements to what records to keep, we look at how to get your small business’ accounts in order with minimum hassle
Especially if it’s your first time, the end-of-year accounting process can seem onerous. You will have to draw upon several different sources of information to build up a complete picture, and you have a legal duty to ensure your accounts are complete and accurate.
In general, you should not attempt to complete your year-end accounts yourself – it is always best to involve the help of an accountant. However, you can cut down on the time they bill you by having a solid grounding in the basics, which this article aims to give.
Here we will address what you are legally required to do in order to satisfy HMRC and Companies House requirements, and how to keep records of specific information they will need. We cover how to plan the entire process and what to ask your accountant when the process is finished.
What are the legal requirements?
The legal accounting requirements you have to deal with include submitting accounts to HMRC with your corporation tax return. These need to be submitted online at the same time as your tax return – within 12 months of the end of your company’s financial year. They are used as the basis of your tax calculations, so HMRC can ensure you have calculated the correct amount.
Other legal obligations include filing ‘statutory accounts’ with Companies House and keeping detailed accounting records. Statutory accounts must be submitted within nine months of the end of your company’s financial year. If you qualify as a ‘small’ company in the eyes of HMRC, you can submit abbreviated accounts.
What do I need to include in my statutory year-end accounts?
Generally, your year-end accounts are known as ‘financial statements’, to distinguish them from the accounts you use in the everyday running of your business.
Your financial statement should generally contain a director’s report, which is a document written by the company directors, summarising the business’ performance throughout the year and their view of its current state and how it will perform in the future.
Other things to include are a balance sheet, which details the total sum of the company’s assets and liabilities at the end of the accounting period, and a profit and loss account giving a summary of income and expenses over the last accounting period. This should include factors like sales, expenses, tax matters and the total amount of profit or loss over the period.
Finally include explanatory notes explaining details about the profit and loss account and balance sheet.
If you qualify as a ‘small’ company (fulfill two of the following: under 50 employees, turnover is less than £6.5m or you have less than £3.26m on your balance sheet) then you only need to submit abbreviated accounts to Companies House and these will be no more than a balance sheet that’s signed by a named director.
It is worth noting that the abbreviated accounts exception doesn’t apply to HMRC or any shareholders you have, who will still require full financial statements. However, it can be useful if you don’t want to publicly reveal lots of information about your company at an early stage.
How do I plan my annual accounts?
Start by deciding how much work you will do yourself. You will almost inevitably have to involve an accountant in the process, but by using accounting software you can do a lot of the legwork yourself and cut down on fees.
Ask your accountant how you can reduce your tax bill before year end, they might recommend bringing forward certain expenditure so you can cut down on your total profit, and ask your accountant what further information they will need.
Finally, book a closing meeting with the accountants and use this meeting to identify areas for improvement in the coming year. In particular, think about whether or not you should buy or upgrade accounting software, how you can manage your creditors more effectively, and ways you can control costs, tax bill and manage your business’ cashflow more effectively.
What accounting records do I need to keep?
Legally, you need to keep a number of ongoing accounting records. As a small business, this should include the following:
Income and expenditure records
This should include receipts for all sales and purchases, cheque books, and up-to-date bank statements.
Unsold stock and uncompleted work at year end (‘floating’ assets)
If you are a service business, you may have a lot of work in progress that cannot be counted as a fixed asset.
A register of fixed assets
This will include information on the equipment and property your company owns.
A record of company liabilities
Any debt or investment you have taken on should be properly recorded.
Staff payroll information
HMRC keeps a particularly close eye on payroll and expenses matters.