Financial Aspects of a UK Limited Company
The following guide is designed to assist you in the basic financial
requirements of a limited company from banking arrangements to
filing accounts.
Introduction
Key
dates
Business
Banking
How
to record your financial records
Do
all companies have to keep accounting records?
What
does a set of accounts include?
Late
filing penalties
Why
does Companies House need this information?
Introduction
The key to running any
business is careful management of finances. This will ensure
you know how much you are spending in comparison to what the
business is earning. Many people consider this to be a complex
task but it really doesn't need to be.
Simply by keeping accurate
records and receipts you are half way there. It is also recommended
you employ the services of an accountant as early as possible.
They will then tell you what records to keep, how to keep them
and what they will do for you. They will normally create all
the necessary financial statements at financial year end and
calculate the company's tax position. A good accountant should
also save you money in the long run by making you more tax efficient.
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Key dates
A newly formed limited
company's financial year end is always set as 12 months after
incorporation to the next month end. For example, if you incorporate
on the 04 May your financial year end will be 31 May the
following year. This is known as your Accounting reference date
(ARD).
You can move the ARD
using form AA01 (available here)
and sending it to Companies House. The change can only be made
to the current or the immediately previous accounting reference
period and you have to register the new ARD before the filing
deadline of the accounts. In other words, if Companies House
is expecting accounts for a particular accounting reference
period and they become overdue, it is too late to say that you
wanted to change the ARD. Private companies normally have 9
months to send their accounts to Companies House. Further information
on moving the company's ARD is available from Companies House
Web site.
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Business
Banking
It is essential you
open a separate bank account for your limited company. Virtually
all high street banks offer free business banking for at least
12 months and there is no reason why you can not move to another
free bank account once this period ends. It is vital you separate
the business finances from your personal finances, this will
avoid problems with the UK tax authorities in the future and
make record keeping much more simplistic. Please review the following page for offers on business bank accounts
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How to record your financial records
There is no prescribed
format for maintaining your limited company financial records.
You simply need to chose the method which suits you best. Many
small businesses start with a simple spreadsheet recording all
incoming and outgoing transactions. Ensure you also keep a paper
receipt or invoice for all transactions just in case the tax
inspector decides to verify your calculations. As your business
grows you may want to consider using a dedicated accounts software
package such as Sage or Quickbooks, your accountant is probably
the best person to discuss this with. The more accurate your
records will mean your accountant will spend less time doing
your year end calculations therefore saving you money in the
long run.
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Do
all companies have to keep accounting records?
Yes. All limited and unlimited companies, whether or not they
are trading, must keep accounting records.
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What
does a set of accounts include?
Generally, accounts must include:
- a profit and loss account
(or income and expenditure account if the company is not trading
for profit);
- a balance sheet signed
by a director;
- an auditors' report
signed by the auditor (if appropriate);
- a directors' report
signed by a director or the secretary of the company;
- notes to the accounts; and
- group accounts (if
appropriate).
Most small companies
are exempt from audit, your accountant will advise on this.
All limited companies
must send their accounts to the Registrar.
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Late filing penalties
If the company misses
a filing date for accounts Companies House will issue a penalty
notice upon receipt. If the company fails to deliver accounts
at all the directors of the company may be prosecuted.
Late filing penalties
start at £150 and increase to £1500 if the filing date is missed
by more than 12 months. Further details are available from Companies
House.
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Why does Companies House need this
information?
In exchange for the benefits of trading with limited liability,
companies must deliver certain information about themselves
to the Registrar. The Registrar must then make this information
available for inspection by the public so that they can make
informed decisions about companies that they may wish to invest
in or do business with.
This is the trade off,
limited liability in return for being transparent to the general
public.
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