For small businesses, keeping accurate financial records can be a game changer. 

Luckily, there are a few simple practices that any limited company can follow to make their bookkeeping as effective as possible.

Specifically, we’ll be looking at:

  • Preparing for taxes
  • Preparing financial records 
  • Business accounts
  • Accounting software
  • Hiring a professional accountant

Following these practices will turn your financial bookkeeping into a helpful tool, rather than a confusing inconvenience.

Preparing for taxes

Good news for limited companies – corporation tax is a little simpler to keep track of, compared to sole-traders or unincorporated businesses.

Corporation tax is calculated at a flat rate of 19% on your taxable profits over the financial period, compared to 20% – 45% for income tax. This will mean you keep more of your profits and won’t be charged more as your profits grow.

This allows you to easily keep track of your upcoming tax bill. As long as you have an accurate record of your company’s income, you can budget %19 of that income for corporation tax.

There are also a number of expenses you can claim back from HMRC, meaning you can deduct some payments you make during the tax year from your taxable profits, so there’s less for you to be taxed on.

Common expenses include:

  • Health expenses
  • Business insurance expenses
  • Advertising, marketing and PR expenses
  • Accommodation expenses
  • Bank charges
  • Use of home as office
  • Gifts, entertainment and trivial benefits
  • Professional subscription expenses
  • Phone bills
  • Annual staff party expenses
  • Equipment expenses
  • Professional development expenses
  • Travel expenses
  • Startup costs
  • Salary
  • Pensions
  • Entertainment expenses

For example, If your turnover is £25,000, and you claim £10,000 in allowable expenses, you’ll only pay tax on the remaining £15,000. This is called your taxable profit.

If you’re unsure about claiming tax relief, you can get more information here

Preparing financial records

While the flat corporation Tax rate keeps calculating your yearly tax returns simpler, limited companies do have more financial records to prepare for shareholders and HMRC.

Limited companies must keep records about the company itself, including:

  • Directors, shareholders and company managers
  • Results of any shareholder votes and decisions
  •  Promises to repay loans at a specific future date and to whom they must be paid back
  • Promises your company makes for payments if something goes wrong and it’s the company’s fault (indemnities)
  • Transactions when someone buys shares in the company
  • Loans or mortgages you take out against the company’s assets (valuable items you own)

Additionally, you must keep financial and accounting records, including:

  •  All money your company receives and spends
  • Details of assets your company owns
  • Debts the business owes or is owed
  • All goods bought and sold
  • Who you bought and sold your goods or services to and from (unless you run a retail business)

Finally, you must keep any other records of financial information, including:

  •  All money your company spent, including receipts, petty cash logs, orders and delivery notes
  • All money the company received, such as invoices, contracts, sales logs and till rolls
  •  Any other relevant documents like bank statements and correspondence (communication with customers, shareholders, suppliers etc., via letters or emails)

Your company’s annual accounts – called ‘statutory accounts’ – are prepared from the company’s financial records at the end of your company’s financial year.

You must always send copies of the statutory accounts to:

  • all shareholders
  • people who can go to the company’s general meetings
  • Companies House
  • HM Revenue and Customs (HMRC) as part of your Company Tax Return

You have different deadlines for sending your accounts to Companies House and your tax return to HMRC, but you may be able to send them at the same time.

Use a business account

Using a dedicated business account will keep your business finances separate from personal expenses. This is important because it’ll help give you a more accurate picture of the company’s money.

Try not to use your business account for personal purchases, and vice versa; it’ll save you a great deal of time when it comes to claiming expenses and declaring taxable profits if all the information is in one place.

Some business accounts, like Countingup, come with built in accounting software that will automate and save you hours on bookkeeping admin. 

Accounting software

Using an app like Countingup is a simple way to improve your bookkeeping.

The two in one business current account and accounting app helps you keep organised and save time on bookkeeping admin, with:

  • Receipt capture – you can scan and store your receipts instantly on the go
  • Tax estimates – so you know exactly how much to put aside.
  • Customised invoicing – you can create and send professional invoices in seconds.
  • Real time profit and loss figures – giving you an accurate picture of your performance.
  • Automatic categorisation – so that all your transactions are in good shape for your tax return. 
  • Direct access for your accountant – you can easily share your financial information with them at any time. 
  • A dedicated support team – there to answer any questions Monday to Friday. 

Having all these features at your fingertips will improve your bookkeeping year round, and is particularly helpful for tax season when you have annual reports to put together. 

Hire an accountant

Sometimes the best way to look after the books is by getting somebody else to do it. If you can hire a full-time accountant, that’s great. But, hiring an accountant just when you need it is also totally fine. 

Of course, you’ll still have to keep accurate records of all your income and expenses, but a professional accountant can give you great advice and insights regarding everything else we’ve mentioned above. 

When tax season rolls around, an accountant can prepare all your accounts much faster and more accurately than you can. You can also appoint an accountant to complete your yearly tax return on your behalf. It’s a short-term expense, but it’ll save you time and prevent costly mistakes.