Bookkeeping for a UK limited company

What is bookkeeping for a limited company?

Bookkeeping is the routine recording of what a company earns and spends. Each sale, purchase, payment and bank movement is entered, categorised and kept with its supporting document. Those records are what the annual accounts and the Company Tax Return are prepared from.

GOV.UK says a company must keep financial and accounting records, and that these must include every other record, piece of information and calculation needed to prepare and file the annual accounts and Company Tax Return. ^[1]

What records must a limited company keep?

The Companies Act 2006 requires every company to keep adequate accounting records. These are records that are sufficient to show and explain the company's transactions and to disclose its financial position with reasonable accuracy at any time. They must contain day-to-day entries of all money received and spent, and a record of assets and liabilities. ^[2]

GOV.UK lists the accounting records a company must keep: ^[1]

• all money received and spent, including grants
• details of assets the company owns
• debts the company owes or is owed
• stock held at the end of the financial year, and the stocktakings used to work out the figure
• all goods bought and sold, and who they were bought from and sold to (unless the company runs a retail business)
• supporting documents such as receipts, invoices, contracts, bank statements and correspondence

GOV.UK also says a company's finances must be kept separate from those of its owners and directors, and that the simplest way is to open a business bank account. ^[1]

How long do I keep the records?

There are different time limits, and the longest applies in practice.

• Company records. GOV.UK says to keep records for 6 years from the end of the last company financial year they relate to, or longer in some cases, such as a transaction covering more than one accounting period or a Company Tax Return sent late. ^[1] The Companies Act sets a minimum of 3 years from the date the records were made for a private company. ^[3]
• VAT records. A VAT-registered business must keep VAT records for at least 6 years. ^[4]
• Payroll records. Employers must keep payroll records for 3 years from the end of the tax year they relate to. ^[5]

What happens if records are not kept?

GOV.UK says a company can be fined £3,000 by HMRC or a director can be disqualified if the company does not keep accounting records. ^[1] For payroll, HMRC may estimate what is due and charge a penalty of up to £3,000 if full records are not kept. ^[5]

If records are lost, stolen or destroyed and cannot be replaced, the company must do its best to recreate them and tell its Corporation Tax office straight away. ^[1]

Which parts of bookkeeping depend on VAT and payroll?

A VAT-registered business has to record the VAT it charges and the VAT it pays on purchases in a VAT account. GOV.UK also requires some VAT records to be kept digitally, using software that can connect to HMRC systems, unless an exemption applies. ^[4] The two sides of VAT are explained in the guide to input VAT and output VAT.

Where a company employs people, it must also record what it pays them, the deductions it makes, its reports and payments to HMRC, and details of leave, sickness absence, tax codes and taxable expenses or benefits. ^[5]

Who can do the bookkeeping?

A director can keep the books personally, a member of staff can do it, or the company can use an outside bookkeeper or accountant. The company's directors remain responsible for the records being adequate, whoever keeps them. The difference between a bookkeeper and an accountant is covered in a separate guide.

HMRC's guidance on money laundering supervision treats professional bookkeeping services as accountancy services. An outside bookkeeper who provides them to clients may therefore have to be registered for money laundering supervision. ^[6] Asking about this is one sensible check when comparing providers.

What should a beginner focus on first?

Keep the business bank account separate from personal spending, store every invoice and receipt, and record transactions regularly rather than at year end. Software can help, and it becomes more relevant once the company is VAT registered and needs digital records. ^[4]

The records are also the starting point for the annual accounts. A specialist bookkeeper or accountant can look at what a particular company needs. If you are comparing outsourced bookkeeping services, a review could identify whether you may be paying more than you need to.