Small Business Accounting
Small Business Accounting refers to the process of recording, analysing, and managing a small business’s financial transactions. It encompasses bookkeeping, financial reporting, tax preparation, budgeting, and cash flow management. Proper accounting helps businesses track income and expenses, ensure tax compliance, and make informed financial decisions.
No matter the size of your business, accounting is essential. You don’t need to be a financial expert, but understanding the basics of bookkeeping, accounting, and taxes is crucial. Accounting helps track performance, manage taxes, and plan for the future, especially vital for small businesses with limited funds.
A great starting point is understanding business compliance, like HMRC’s “Making Tax Digital” initiative, which requires VAT-registered businesses to maintain digital records. Thankfully, many affordable accounting software options are available, be sure to choose one that fits your needs.
At Expert Accounting, our dedicated team of small business specialists offers personalized support – from business planning and tax returns to proactive financial advice, helping you achieve lasting growth and success
How Much Should Small Business Accounting Cost?
The cost of small business accounting can vary depending on several factors:
- Use of Cloud Accounting Software: If your accountant can access live data, it saves time and reduces costs.
- Bookkeeping Processes: Accurate, up-to-date records can lower the cost of accounting services.
- Industry Complexity: Some industries, such as the construction sector i.e. CIS, have additional reporting requirements, which can increase costs.
Typically, for year-end accounts and company tax returns, the cost can range from £500 to several thousand pounds depending on the scope of services. It is best to seek an accountant who provides fixed-fee quotes rather than hourly rates, as this ensures predictable costs. For example, at Expert Accounting, we offer a fixed monthly fee, so our clients can easily include these costs in their monthly forecasts.
Remember, the value an accountant offers is key. If they are only handling compliance, make sure you are also getting strategic advice that can help reduce costs, save on taxes, and boost profits. A good accountant can often save you more than their service costs!
Small business accounting and tax
Whether you are a small or large business, you must file annual accounts and tax returns to HMRC. Small businesses should be aware of the following tax requirements:
- VAT: If your taxable turnover exceeds £90,000 annually, you must register for VAT and submit VAT returns to HMRC.
- Payroll: If you employ staff or directors, you may need to deduct tax and National Insurance. Payments must be reported to HMRC, based on your payroll frequency.
- Corporation Tax: Companies must pay Corporation Tax on taxable profits. The current rate for small businesses ranges from 19% up to 25%.
- Income Tax: For sole traders or self-employed individuals, profits are subject to Income Tax and Class 4 National Insurance. Be aware of advance payments, as newer businesses may be caught off-guard.
Making Tax Digital for Small Businesses
Accounting software has evolved, and now there are user-friendly options designed specifically for small businesses. These tools help with bookkeeping, invoicing, payroll, and financial reporting, making it easier to track cash flow, profits, and expenses. Popular options like Xero, Sage, and QuickBooks also generate employee payslips and automatically record payroll costs in your accounts.
When selecting software, research carefully, some tools, like Xero or QuickBooks, help small businesses claim reliefs, such as the employment allowance.
Making Tax Digital for Small Businesses
Many small businesses face challenges with tax compliance, and this is why HMRC introduced Making Tax Digital (MTD). VAT-registered businesses with a taxable turnover over the VAT threshold are now required to use digital tools for record-keeping and VAT submissions.
The benefits of digital tools include automatic data syncing from your bank to accounting software, which saves you time and reduces errors. With tools like Xero, QuickBooks, and Sage Cloud, financial information can be submitted directly to HMRC. These solutions often have reporting features that help you stay on top of your cash flow and profits, while also reducing the time spent on manual entry.
Do I need an accountant for my small business?
There is no legal requirement for businesses to hire an accountant or external bookkeeping services. However, businesses must submit accurate annual accounts and tax returns that comply with financial reporting standards. Many small business owners attempt to save money by doing this themselves, but bookkeeping and tax management are time-consuming and prone to mistakes, which could lead to penalties or surcharges from HMRC.
Hiring an accountant can free up your time to focus on growing your business while ensuring your accounts stay compliant and on track. Properly managed finances also provide valuable insights into your business performance, helping you make strategic decisions.
Do I need an accountant if I’m self-employed?
Like any business, there is no legal requirement to have an accountant if you are self-employed. However, unless you have a strong understanding of tax, profits, and deductible expenses, working with an accountant can help ensure you claim all eligible deductions and minimise your tax liability.
At Expert Accountants, we provide tailored, cost-effective services for self-employed individuals, including annual reviews and consultations. This gives you access to our expertise without the full cost of comprehensive tax preparation services
Frequently asked Small Bussiness Accounting questions.
It tracks income, expenses, and taxes to manage finances and ensure compliance.
It helps businesses stay compliant, monitor cash flow, and plan for growth.
- Recording income and expenses
- Managing invoices and payments
- Tracking business bank accounts
- Preparing financial reports (Profit & Loss, Balance Sheet)
- Filing tax returns and ensuring compliance
It depends on your business size and complexity. Many small business owners start with accounting software, but hiring an accountant can save time, reduce errors, and provide expert financial advice.
Good accounting practices help businesses:
- Stay compliant with tax laws
- Monitor cash flow for sustainability
- Plan for growth and investments
- Avoid penalties and financial mismanagement