Completing your year end accounts for the first time as a company can feel like a daunting, or boring, task. But, it’s crucial for both ensuring compliance with the UK’s accounting and legal requirements as well as gaining valuable insights into your company’s financial health.
This checklist is designed to guide UK businesses, particularly those preparing year end accounts for the first time, through the process.
What Are Year End Accounts?
Year end accounts, also known as annual accounts or statutory accounts, provide a summary of a company’s financial performance over a financial year. In the UK, these accounts are a legal requirement for all limited companies and must be submitted to both Companies House and HMRC.
Your year end accounts are crucial for understanding your company’s profitability, tax obligations, and future growth potential. Failure to submit accurate accounts can result in penalties, so it’s essential to understand what’s involved.
First Year End Accounts Checklist
This checklist covers everything you need to know when completing your first year end accounts as a UK startup.
1. Determine Your Company’s Year End Date
For example, if you incorporated on 15th June, your year end date will likely be 30th June the following year. You can find your year end date on Companies House or on your certificate of incorporation. It’s crucial to know this date as it determines your deadline for submitting accounts.
2. Review Key Deadlines
Submission to Companies House: You must file your annual accounts with Companies House within 9 months of your year-end date. If your financial year ends on 30th June, your accounts must be submitted by 31st March of the following year.
Submission to HMRC: Your company must also file its tax return, which includes the year end accounts, to HMRC within 12 months of your year-end date. For a year ending on 30th June, the deadline is 30th June the following year.
3. Gather Financial Records
Bank statements for the full financial year.
Invoices issued to clients or customers.
Receipts for business expenses.
Payroll records if you have employees.
Records of company assets (equipment, vehicles, property, etc.).
Loan agreements and interest payments.
4. Reconcile Your Accounts
Compare your bank statements with your accounting records to ensure all transactions have been accurately recorded.
Match your invoices with payments received from customers and confirm that all outstanding amounts have been correctly accounted for.
Verify all expenses by cross-referencing receipts with payments made.
Reconciliation helps ensure that your accounts accurately reflect your company’s financial position, reducing the risk of errors or discrepancies.
5. Prepare Financial Statements
Profit and Loss Statement (P&L): This document summarises your company’s income and expenses during the financial year, showing whether your business made a profit or loss.
Balance Sheet: This statement provides a snapshot of your company’s financial position at the end of the financial year. It lists your assets, liabilities, and the value of the company’s equity.
6. Consider Adjustments for Accruals and Prepayments
Accruals: If your business has incurred expenses during the financial year but hasn’t yet paid for them, these should be recorded as accruals. Similarly, if you’ve earned income but haven’t yet been paid, it must be recorded as accrued income.
Prepayments: If your business has paid for goods or services in advance of receiving them (e.g., rent paid for the next financial year), these should be recorded as prepayments.
Accurately accounting for accruals and prepayments ensures your year end accounts reflect the true financial performance of your business.
7. Calculate Corporation Tax Liability
One of the primary purposes of your year end accounts is to calculate your company’s corporation tax liability. In the UK, companies are required to pay corporation tax on any profits generated during the financial year.
As of September 2024, corporation tax is currently set at 19% of profits for companies whose profits are below £50,000 (subject to any changes by the UK government). To calculate your tax liability, subtract allowable business expenses and other deductions (such as losses carried forward from previous years) from your profit, and then apply the tax rate.
8. Review Directors’ Report and Notes to the Accounts
While small and micro-entities may be eligible for exemptions, it’s crucial to check whether you need to include these elements in your accounts.
9. File Your Accounts
You will also need to submit a Company Tax Return (CT600) to HMRC along with your accounts. This includes details of your company’s income, expenses, and tax payable.
10. Appoint a startup Accountant
If you’re unfamiliar with accounting practices, or if your company’s finances are particularly complex, it’s advisable to seek help from a professional accountant. An accountant can help ensure your accounts are accurate, compliant with UK regulations, and submitted on time.
Completing your first year end accounts may seem overwhelming, but by following this checklist and maintaining organised financial records throughout the year, you can navigate the process smoothly. Accurate and timely submission of your year end accounts is not only a legal requirement but also a key opportunity to gain insight into your company’s financial health and ensure you’re on track to meet your goals.
This article was first published by Jump Accounting.
