This Guide is aimed at smaller limited companies. At present, companies with an annual turnover below £6.5 million (has increased to £10.2m for accounting periods starting on or after 1 January 2016) and Balance Sheet total of no more than £3.26 million (£5.1m for accounting periods starting on or after 1 January 2016) must file a set of accounts each year, both with HMRC and with Companies House. However, the company is exempt from a statutory audit unless required to have one by a regulatory body, for example if the company is a charity.
There is a legal requirement to keep detailed accounting records for the company. The exact requirements will depend on the size and complexity of the business.
For the very smallest business, the absolute minimum accounting records would be an Analysed cash book, splitting all payments and receipts into separate columns for each type of expense or income.
In many cases planning the preparation of your annual accounts can be covered in a telephone call, alternatively you are welcome to come in for a meeting. Everyone involved needs to be clear about who is responsible for doing what, and when. For example:
- How much of the accounting work will you do yourself?
If you use a manual accounting system, all the basic arithmetical work should be done by the book-keeper. Every column of figures should add up correctly and tally with all the invoices, cheque books, bills and paying-in books. Most importantly, all entries should tally with the business bank statements.
A good computerised system can do all these things automatically. Depending on your company's accounting expertise you may be able to produce an income and expenditure statement together with a trial balance. A trial balance lists all of the credit entries and the debit entries in the accounts, with total credits balanced by (or equalling) total debits.
- Ask whether there are any tax planning steps you should take before the year end. For example, you may be advised to make certain asset purchases earlier, so that they count in the current accounting period, perhaps making use of your Annual Investment Allowance (AIA) for tax purposes.
- Ask what other information and 'schedules' we will need. These are likely to fall into four key areas:
- Sales and Purchases
- Fixed assets
- Wages and Salaries
- Book a date in the diary with us for a finalisation meeting.
Prepare a summary of all sales invoiced during the year, together with details of other income received.List sales made before the year end, but not yet paid for, as outstanding debtors. Include the amount, the invoice number and the invoice date. Note any invoices that you suspect may not be paid, with a brief explanation. The accountant may make a 'provision for bad debts'. This effectively cancels the sale in your accounts.
- Prepare a summary of all purchases and expenses made during the year, analysed out into types of expense, such as materials, repairs or motor expenses.
List purchases made before the year end, but not yet paid for, as outstanding creditors. Include the amount, the supplier's name and the date payment is due.
Note any invoices you dispute and do not expect to pay, with a brief explanation.
As general good practice, it is always best to list and analyse your debtors and creditors by date (an 'aged' list). It is then immediately apparent where problems may arise, such as bad debts.
- Cross-referencing means that details of any transaction can be easily found, with a trail that can be traced right through the records.
Purchases and sales
Your accounting records should be clear and logical. This saves time for everyone involved and minimises the likelihood of, for example expenses being missed.
The company is required to maintain a schedule or list of all assets, including any property, plant and machinery, equipment, furniture, motor vehicles, etc. that is owned by the company and used in the production or supply of goods or services. List out relevant details for each asset, including of date purchased, cost, and estimated useful life. For any disposals in the year make a note of any proceeds received or details of the transaction where disposed of in part exchange for a replacement item.
The value of stock is a key element in retail and manufacturing businesses. It includes work-in-progress. Service businesses (e.g. management consultants) have little physical stock, but may have considerable 'work-in-progress', such as half-finished projects.
Unless stocks are a minor item in your accounts, you will need to carry out a stock take. This is a physical count-up of the goods on your premises. It is made easier and faster with careful planning.
Wages & Salaries
All businesses employing staff are required to keep accurate personnel records both to comply with legislation and for the purpose of maintaining accounting records. Accurate records ensure that your staff receive the correct wages, pensions and other entitlements and that you pay the correct tax and national insurance contributions.
At the planning stage, let us know if you would like a finalisation meeting once the accounts are completed.
The purpose of this meeting is for us to feedback constructive ideas and advice on how you can improve your business practices and your accounting records. It’s also a good opportunity for us to discuss your future plans and advise on any tax efficiencies that may be available.
Harney & Co.
We can provide comprehensive advice on all aspects of accounts preparation, including:-
- Book-keeping systems
- Accounting Software
- Credit Control
- Tax planning
- Book-keeping services
- Cash flow management and forecasting
- Cloud accounting
- How much of the accounting work will you do yourself?