Yes. All limited and unlimited companies, whether or not they are trading, must keep accounting records.
Financial Aspects of a UK Limited Company
Understand the requirements placed on company directors!
The following guide is designed to assist you in the basic financial requirements of a limited company from banking arrangements to filing accounts.
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.
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.
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
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.
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.
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.
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.
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.