Record Keeping and Your Business

Updated: Sep 25, 2019


Financial Record-Keeping a must in your business

We've put the question to Google how many small businesses in the UK and to my surprise, there were 5.7 million in 2018, which was over 99% of all businesses and Mico Businesses.


To define what is considered as a small business and medium-size business(SME's) the unit measure is determined by the numbers of employees the rule of thumb is any business with fewer than 250 employees is a small business. Micro-businesses have 0-9 employees and here another staggering statistic there were 5.4 million microbusinesses in the UK in 2018, accounting for 96% of all businesses.


Which mean that only 3% of SME's in 2018 operates in the UK and the large majority are Micro-businesses. Although the vast majority of businesses in the UK employ fewer than 10 people, this sort of business only accounts for 33% of employment and 21% of turnover. There are 8,000 large businesses, with more than 250 employees, accounting for 0.1% of businesses but 40% of employment and 48% of turnover.


Record-Keeping a must when you run your small business


Some businesses are starting but do not record their accounting record at all or do not do it correctly according to what the government wants to see and either you are a limited or unlimited company your record for your business should include the following.


Every company, whether or not they are trading, must keep accounting records. These must contain: book-entry showing all money received and spent by the company a record of the assets and liabilities of the company.


if your company’s business involves dealing in goods, the records must contain:


Statements of stock held by the company at the end of each financial year.

statements of stock takings from which you have taken or prepared any statements of stocks statements of all goods sold and purchased, other than by ordinary retail trade.

This should list the goods, the buyers and sellers.


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Micro-company and their account


Any companies that do not meet the criteria for micro-businesses, small or medium are large companies will have to prepare and submit full accounts.


Micro-businesses can prepare and file a balance sheet with a reduced set of information than that required by a small, medium or large company. Additionally, a micro-company will be able to benefit from the exemptions available to small companies such as exemption from audit and the requirement to file a directors’ report or profit & loss account at Companies House. Micro-business still need to send accounts to their members as well as filing them at Companies House if you are a limited business.


Qualifying as a Micro-business


To be classified as a Micro-business you must meet at least two of the following conditions:

your turnover cannot be more than £632,000 and the balance sheet total must be less than £316,000 as well as the average number of employees must be less than 10.


Qualifying as a small company


As of the 01/01/2016, a small company must meet at least two of the following conditions:

your annual turnover must be less than £10.2 million and the balance sheet total less than £5.1 million, as well as the average number of employees, must not be more than 50


Prior to the 01/01/2016, the thresholds were:

Your annual turnover must be less than £6.5 million and the balance sheet total must be less than £3.26 million as well as the average number of employees must be not more than 50


Meaning the annual turnover qualifying amount increased in 2016 by 4 million and the balance sheet amount by 1.84 million. The change suggests than small business declared a huge increase in revenues gains over a period of time for the government to review the threshold.


Small company and their account


A small company accounts prepared for members include:


a profit and loss account, a balance sheet, signed by a director on behalf of the board and the printed name of that director notes to the accounts.


And they should be accompanied by:


a directors’ report that shows the signature of a secretary or director and their printed name an auditors report that includes the printed name of the registered auditor (unless the company qualifies for exemption from audit and takes advantage of that exemption).


This applies if you are a limited company if you are unlimited it does not apply to you but it is good practice to do your profit and loss account yearly as well as your balance sheet as these documents can be required by lenders if you want to borrow fund for your business.

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If you are limited further legal requirement about your accounting record


The balance sheet must contain a statement in a prominent position above the director’s signature and printed name that the accounts have been prepared in accordance with the special provisions applicable to companies subject to the small companies’ regime.


Small companies do not have to deliver a copy of the directors’ report or the profit and loss account to Companies House. However, if they opt not to deliver a copy of the profit and loss account the company must state this on the balance sheet.


The requirements for companies subject to the small companies’ regime are set out in Parts 15 and 16 of the Companies Act 2006. Further information on the detailed format and content of accounts for small companies can be found in the relevant regulations.


Small company abridge accounts if you are limited


"The Companies, Partnerships, and Groups (Accounts and Reports) Regulations 2015 introduced the concept of abridged accounts. Abridged accounts contain a balance sheet that contains a sub-set of the information that is included in a full balance sheet. Likewise, the profit and loss account may also contain a sub-set of the information that is included in a full profit and loss account"


Your company must now prepare and file the same set of accounts for its members as for the public record. This means that a company will decide at the point they are preparing their accounts whether or not to abridge them (or to prepare micro-entity accounts).


Previously a company would prepare full accounts for its members and would then decide whether or not to abbreviate them for the public record.


If you opt to file an abridged balance sheet and/or profit & loss account then you must include a statement on the balance sheet that the members have agreed to the preparation of abridged accounts for this accounting period in accordance with section 444(2A). in 2015 regulations the abbreviated accounts were abolished.


Qualifying for audit exemption as a small limited company

If your small company qualifies for audit exemption, it may submit unaudited accounts to Companies House. In either case, the balance sheet must contain wording to the effect of the following statements above the director’s printed name and signature:


"For the year ending ………………(dd/mm/yyyy), the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies. The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.

The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts. These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime”


Submitting your account to the company house


You can submit the following accounts online using the Companies House WebFIling service:

dormant company accounts for companies that have never traded. Micro-company accounts small audit exempt abbreviated accounts (only for accounting periods beginning prior to 01/01/2016).


There are also a variety of software providers which also offer a range of accounting packages which may be used for the preparation and filing of accounts. Most types of accounts can be software filed, depending on the functionality of the software package that you are using. click on the link for the gov list there is plenty and suited for your company type.


Lenght of keeping your financial record


3 years for small companies and 6 years for large companies upon which they can be archived or destroyed but it is good to keep your record as you see your progress as a company and how you manage your business finances by years if you are profitable years by years or you experience a loss.


Conclusion


This blog post shows the importance of record-keeping in your medium, small and micro-business company and the level of record accepted by the company house if limited and it is a legal requirement. It is the responsibility of the director to do the record and you can hire an account to do this for you but you do not have too if you know how to do it.


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