Small Business Accounting: Everything You Need to Know

In 2018, there were 2.2 million more small businesses than in the year 2000. In fact, today there are more than 5.7 million small businesses in the UK alone. However, while these statistics are exciting for the future of the country, it’s essential that business owners understand the basics of small business accounting to ensure that they keep all of their affairs in order for the success of their companies.

Different Aspects of Small Business Accounting

To help you better understand the financial side of your business, here are some different aspects you should be aware of to make sure that all of your books are above board:


Bookkeeping is an essential part of your small company accounts. This financial aspect of your business includes everything from keeping track of your invoices to monitoring your outgoings. Moreover, it includes the recording of your expenses and your payroll.

These activities are all extremely time-consuming. However, if conducted correctly, they can help you get your company in a great financial position. In truth, you can do your bookkeeping manually. That said, many accountants use cloud accounting software like Xero to give you a better, more organized view of your business accounts.


VAT is only relevant to companies that have a yearly turnover of more than £85,000. If your sales equate to less than this sum, you can register for VAT anyway but, this is not a legal requirement.

Typically, you will charge your clients and customers 20% on their purchases. You should add this amount to your sales invoices in order to put it aside when your clients pay you. Later, you can reclaim VAT on business-related purchases. You must pay the net amount of both types of VAT to HMRC. You must also file VAT returns on a quarterly basis.

small business accounting for beginners

Your Income Tax

Everyone has the right to a tax-free personal allowance of £12,500 each year. Once you reach this threshold, any salary below £50,000 is taxed at 20%. If your salary is higher than this, you will pay 40% tax. After £150,000 a year, you will be in the highest tax bracket, meaning you will have to pay 45% tax on your income.

When it comes to small business accounting, you also have to consider National Insurance Contributions (NICs) as well as dividend income if you own a limited company. These come with various rates and thresholds and are an aspect of small business accounts that you should keep in mind when determining yours and your employees’ salaries.


Pay As You Earn (PAYE) is the system that HMRC uses to collect tax from your earnings each tax year. HMRC will determine each of your employees’ PAYE codes. From there, you will be able to determine how much tax each individual worker within your company should pay. This process can be lengthy. You, therefore, may want to seek the advice of a local Petersfield accountant.

Traditionally, employees pay 12% of NIC although this does depend on each individual’s salary. Employers, on the other hand, have to pay 13.8% NIC. That said, this fee won’t be deducted from your salary. As a result, it counts as an extra business tax cost.

small business accounting teams

Corporation Tax

When it comes to limited company accounts in the UK, you have to pay 19% in corporation tax on all of your yearly profits. Each year, you have to complete a corporation tax return. Moreover, you have to pay this tax return within nine months and one day of the small business accounting period.

Annual Accounts

Annual accounts involve you creating a formal record of your yearly financial performance. This report must include your:

  • Sales
  • Costs
  • Assets
  • Amounts owed

The time at which this report is due depends entirely on the type of business you run. While you can choose which date your accounting year ends, it makes sense to run it from April 1st to March 31st if you’re a sole trader. This is because you need your accounts to back up your tax return which is due on April 5th each year.

However, if you’re a limited company, you can choose dates to suit your individual circumstances. While you will have to complete and file your annual accounts with Companies House each year, the date on which you do so is less relevant.

Outsource Your Small Business Accounts to the Experts

As you can see small business accounting is a complex part of running a company. Without the right tools, expertise, and time, you may find it difficult to keep your books in order. This, in turn, could lead to a lack of compliance. You may also find that you miss out on big saving opportunities.

If you own a business in Petersfield or its surrounding areas, contact Newnham & Son today. We have a dedicated team that will be able to undertake a full financial analysis of your business, thus allowing us to identify areas for improvement.

We are fully accredited and chartered for peace of mind

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