Accounting for Businesses: What Do You Need to Know?
Accounting should not simply be treated as a year-end exercise. Keeping accurate and up-to-date financial records throughout the year can help business owners understand cash flow, monitor profitability, prepare for tax liabilities and make better-informed decisions.
Whether you operate as a sole trader or through a limited company, it is important to understand which records you need to keep and when accounts or tax returns need to be submitted.
Who Is the Best Accountant for You?
Small businesses face many financial challenges, from managing cash flow and expenses to dealing with tax, payroll and annual accounts. A qualified accountant can help reduce this administrative burden and provide advice on the financial health of the business.
When choosing an accountant, consider their qualifications, experience with businesses similar to yours, the services they provide and how frequently they will communicate with you.
You can use the ACCA Find an Accountant service to search for Chartered Certified Accountants and accountancy firms.
What Can an Accountant Do?
Depending on their qualifications and the services offered, an accountant may help with:
- Bookkeeping and accounting records
- Annual accounts
- Tax planning and tax returns
- Payroll and PAYE
- VAT
- Cash-flow forecasting
- Management accounts
- Business planning
- Internal financial controls
Using cloud accounting software can also make it easier to keep records updated throughout the year rather than waiting until the end of an accounting period to establish how the business has performed.
Keep Accurate Business Records
Business owners have responsibilities for maintaining appropriate financial records. Sole traders need to keep records of business income and expenses, while limited companies must maintain accounting records sufficient to show the company’s financial position.
HM Revenue & Customs may ask to inspect business records, so information should be complete, accurate and retained for the required period.
Self-employed business owners can find current requirements in the GOV.UK guidance on business records for the self-employed.
Directors should also review the GOV.UK requirements for limited company accounting records.
Understand Your Tax Responsibilities
Tax rules and allowances can change, so businesses should avoid relying on outdated information when making financial decisions. Regularly reviewing your tax position can help you anticipate liabilities rather than discovering unexpected amounts at the end of the year.
An accountant or suitably qualified tax adviser can help explain how areas such as Corporation Tax, Income Tax, VAT and allowable business expenses apply to your circumstances.
Although an accountant can carry out many accounting and tax tasks on your behalf, business owners and company directors still retain legal responsibilities for certain records and submissions.
Payroll and PAYE
If your business employs staff, payroll becomes another important accounting responsibility. Employers will normally need to operate PAYE as part of their payroll and report relevant information to HMRC.
Businesses can run payroll themselves or appoint an accountant or payroll provider, but employers remain responsible for making sure their PAYE obligations are completed correctly.
Current requirements are available in the GOV.UK PAYE and payroll guidance for employers.
Use Accounting Information to Run the Business
Good accounting should help you understand what is happening in your business now, not simply explain what happened during the previous financial year.
Regular management accounts and cash-flow forecasts can help identify falling margins, rising costs, late-paying customers and potential funding requirements before they develop into larger problems.
By reviewing financial information throughout the year and obtaining professional advice when necessary, businesses can make decisions based on current figures while remaining better prepared for their accounting and tax obligations.