A Beginners Guide to Setting up Accounts for Your New Limited Company
So you’ve decided to set up a limited company. Before you jump into building your business there are a few nitty gritty details that you need to think about first. One of the most important bits is managing your accounts and staying on HMRC’s good side. You need to make sure you get this part right so HMRC doesn’t need chase you up with stern letters or penalties.
This guide will cover the basics of setting up your annual accounts, filing tax returns, paying corporation tax and important deadlines you need to meet to stay above board.
How to Prepare Your Annual Accounts
What Are Annual Accounts?
Also called “statutory accounts” these are accounts prepared from your company’s financial records at the end of your financial year. Your accounts will be filed as part of your tax return so that you can work out your corporation tax.
How Do I File Them?
Annual accounts must include:
– A balance sheet which gives an overview of everything the company owns, owes and is owed.
– A profit and loss account, which shows sales, running costs, profits and losses
– Any notes about the accounts and a director’s report
Your annual accounts usually cover more than 12 months, starting from the day your company was set up or “incorporated”. It ends on the accounting reference date that Companies House sets as the end of your financial year. It’ll be the last day of the month your company was set up.
So your first annual accounts might go over a year if you set up your company in the middle of a month because the annual accounts will be due at the end of that month the following year. In future years it’ll start at the start of the month and end at the end of the month.
You have to send a copy of these accounts to all shareholders, Companies House and HMRC as part of your Company Tax Return. You can find out more about how to send your accounts over to Companies House and HMRC here.
How to File a Company Tax Return
What is a Company Tax Return?
When filing your tax return you need to work out your profit or loss in order to work out the amount of Corporation Tax that you owe. You are still required to send a tax return even if you’ve made a loss and don’t have to pay any Corporation Tax.
How Do I File One?
You might have to file two tax returns in your first year because your accounting period on one cannot be longer than 12 months.
The dates of your first tax return depend on whether you started trading on the same day you set the company up or if you didn’t start trading until after it was set up.
If you started trading on the day your company was set up then you need to file 2 company tax returns, one for your company’s first 12 months and another for the rest of the time covered by your company’s first accounts if your annual accounts are longer than 12 months.
If you started trading after your company was set up you need to tell HMRC when you started to trade so that you can register for Corporation Tax.
Companies can be “dormant” for Corporation Tax in the period between when you set up the company and when you actually started to trade.
If you company was dormant and you registered before your accounting reference date then you don’t usually file a tax return for that period. You should prepare your first tax return for the period that you are trading.
If you didn’t register for Corporation Tax before your accounting reference date, then you have to file 2 tax returns. One for the period that you were dormant and one for the period that you were trading.
After doing this, the dates for your accounts and tax returns will generally match up to your company’s financial year so you won’t have to do this every time.
You can file your Company Tax Return and accounts here.
How to Calculate & Pay Corporation tax
What is Corporation Tax?
Corporation Tax is a tax levied on the profits of a limited company and is mandatory. It is usually set at 20%. However, you won’t get a bill for it, it’s up to you to work out how much you owe, report it and then pay it.
How Do I Pay?
First you have to register for Corporation Tax when you start a business or restart a dormant one. Make sure you keep accounting records and prepare a Company Tax Return in order to work out how much Corporation Tax you will have to pay.
You can deduct the costs of running your business from your profits so it’s important to keep track of all of your expenses as this will give you tax relief when it comes to doing your accounts.
Then you should either pay the tax or report if you have nothing to pay by your deadline which is usually 9 months and 1 day after the end of your accounting period.
Important deadlines to meet
- File first accounts with Companies House – 21 months after date registered
- File annual accounts with Companies House – 9 months after company’s financial year ends
- Pay Corporation Tax or let HMRC know that you don’t owe any – 9 months and 1 day after your accounting period for Corporation Tax ends.
- File a Company Tax Return – 12 months after you accounting period for Corporation Tax ends
If you don’t meet these deadlines, you can still negotiate with HMRC to pay due tax over a longer period. However, it’s best to keep on top of everything in order to avoid fines and other penalties.
One of the best ways of doing this is to hire an accountant who can sort through all the hassle and stress, leaving you free to spend your time working on growing your business.
Our Limited Company Accounting Services for London Businesses
Our fees start at £49.50 per month. If you’re interested in signing your business up to The Accountancy Partnership, your next step is to get a quote. Use any of the quote buttons located across the website, these will take you over to our main website. Getting a quote is quick and easy, once completed you will be emailed all the details. You can either sign up online once you have a quote or chat to us to discuss the details.
Often limited companies outgrow their accountants and need to move, changing accountants is simple. If you’re looking to change accountants, it’s a simple process and we take care of it all.