Nov 10, 2024

2023 Year-End Guide: Small Business Accounting Essentials

Preparing the company financial statement is time-consuming and intense. It’s hard to know what to include, especially if it’s your first time filing.

It’s time-consuming and confusing. It can feel like a “choose your own adventure” process. Do you need an audit? Are you a micro-entity? What is the difference between a full and simplified balance sheet? This guide simplifies the process to save you time and frustration.

Determine your company size

The Companies Act 2006 aims to simplify the annual accounts. It helps micro-entities simplify their yearly accounts. This flow chart may help determine if your company is eligible.

If you are public, an insurance company, or a moneylender, your company is not eligible. But, you may qualify if you meet two of the three size criteria: turnover, balance sheet, employee size. There are four categories:

Micro-entity - no more than: £632,000 turnover, £316,000 balance sheet total, ten employees
Small company - no more than £10.2M turnover, £5.1M balance sheet total, 50 employees
Medium-sized company - no more than £36M turnover, £18M balance sheet, 250 employees
Large company: doesn’t meet any of that criteria

Micro-entities are typically owner-managed and don’t have to report to shareholders. The UK government wanted to spare these organisations time and costs that are not as necessary as they are for larger organisations. Micro-entities can prepare simplified balance sheets, profit and loss accounts, and an audit report unless you can claim exemption.

It’s essential to include statements above the director’s signature that the accounts have been prepared under the micro-entity provisions and a statement for the audit exemption.

Small, medium-sized, and large organisations have to provide more financial information:

A complete balance sheet of everything you own as well as what you owe or is owed to you
A full profit and loss report outlining all sales, costs and losses throughout the year
A director’s report specifies any directors' names throughout the year, the amount they are paid in dividends, and any disclosures.
An auditor’s report, depending on the size of your company.

No matter your company size, there are four critical steps to follow when preparing your year-end taxes no matter your company size.

File first accounts with Companies House: 21 months after you registered with Companies House.
File annual accounts with Companies House: 9 months after your company’s financial year ends.
Pay Corporation Tax (or tell HMRC that you don’t owe any): 9 months and one day after your “accounting period” for corporation Tax ends (the accounting period is usually the same as your financial year).
File a Company Tax return: 12 months after your “accounting period” for Corporation Tax ends.

You have to file with Companies House and HMRC separately unless you have a private company that doesn’t need an auditor.

Content of a balance sheet and profit and loss statement

A balance sheet outlines your company’s value. Assets include cash, inventory, accounts receivable, land, equipment, and intellectual property. Liabilities are your costs, like payroll, debt, rent, etc. The purpose of the balance sheet is to show how you use resources.

A profit and loss (P&L) statement details revenues, costs, and expenses. The purpose is to show your profitability. Investopedia summarises the difference: “The balance sheet reports assets, liabilities and shareholder equity at a point in time, while a P&L statement summarises a company's revenues, costs, and expenses during a specific period.”

File on time

Make sure you know your filing dates as there can be significant penalties for filing late. If you’re up to one month late filing for Companies House, it’s a £150 fee, but if you’re more than six months late, it is a £1,500 fee. If you’re late two years in a row, the fees double.

If you’re more than one-day late filing for HMRC, there’s a £100 fine. If you are six months late, they will charge you 10% of the unpaid tax, and they will charge another 10% of unpaid tax if you’re 12 months late.

You can appeal late fees. You can make a case if you have a disability, life-threatening illness, death in the family, or a fire, for example, that prevented you from filing on time.

There is also an option to apply for an extension, but this also requires similar special circumstances. The extension application must be submitted before the deadline.