Does my business structure affect my accounting?

Yes, there are four types of business in the UK, and each affects how the accounting is done. These are sole traders, partnerships, Limited Companies and Limited Liability partnerships (LLPs).

I’m a sole trader; what accounting do I need to do?

Keep records, submit an annual return and pay Class 2 and Class 4 National Insurance (the latter depending on income). You also need to check if you have to comply with MTD. If you do, you or whoever looks after your affairs needs MTD software.

I run a partnership; what are my accounting obligations?

In partnerships, two or more people run the business. They have to record expenses and pay income and National Insurance on profits. Partnerships don’t have to register with Companies House or file annual accounts. They have to register with HMRC and submit a partnership return. Partners do self-assessment. This can get complex, and that means you might want to track things with good bookkeeping and tax software.

I’m a limited company; what are my accounting obligations?

Limited companies are their own legal entity – separate from the people who own or manage them. You have to file accounts with Companies House, send a corporation Tax return to HMRC, record all money received and spent, and ensure you have a register of people with significant control over the company. Good software will help you keep track and prepare what’s needed.

As a small business owner, should I do accounting myself?

We recommend that you consider using a bookkeeper and accountant if your business is very complex. If you go it alone, your software will help you track your income and outgoings, meet MTD obligations, prepare reports, send tax returns, and stop things from getting out of control.

If I get payroll and HR software, won’t that confuse things?

Not necessarily. It has been a problem in the past, but modern cloud software should allow these different platforms to “talk” to one another. They can share information and update one another as you go. This can save you a lot of time as you simultaneously track staff, how much you pay them and your company’s bottom line.

Small business accounting packages – do you need one?

Good small business accounting covers everything – from tracking payments to producing tax returns. Without the right solution for you, this can take time and become a struggle.

Understanding small business accounting, software and your obligations

Tracking income and expenses, preparing your set of accounts, and reporting everything to HMRC. These are mission-critical challenges for small businesses… and they don’t stop there.

Get anything wrong, and you face tough penalties.

Unfortunately, it doesn’t take much time to realise accounting gets very complicated very quickly.

So where do you start – what software will help you?

What is small business accounting?

Accounting enables a small business to watch its financial performance and position, handle legal obligations and plan ahead. It can be done:

In-house, with the right software.
Via dedicated professionals like accountants.
A mixture of the two – with experts providing your small business employees with advice.

Featured Guide

Our FREE guide to small business accounting and more

We’ve created a comprehensive guide covering small business accounting, software and outsourcing. It also covers other compliance challenges you’ll face.

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In-house vs external accounting

In-house accounting means more effort and, undoubtedly, excellent software to give you maximum control.

An external accountant or bookkeeper takes the burden off – but you still need to supply them with data, so you might want software to make that job easier.

When it comes to accounting, there are three main types of solutions for small businesses:

Cloud accounting software
Desktop accounting software
Hosted Desktop – desktop software hosted on a server

Accounting Software: what it should offer a small business

Small business accounting software can include some important features and characteristics.

The cloud

Cloud accounting software lets you work from anywhere. We have a separate section on cloud, but for now, it’s important to know it is the newest form of accounting software technology. It’s different from desktop packages and doesn’t require the expense of a server. Instead, it’s designed to work in a web browser.
Modules

Often, modern software is split into distinct modules, making them easier to update and keep safe. Some software providers, including IRIS, let you pick a collection of modules so you only buy what you need.
Integration

Good software is truly integrated. Integrated software should mean all your modules work together, as well as with other software. This means financial data is passed between your online accounting software packages – and your desktop ones – and everything updates all at once. You can even link up HR and payroll.
Compliance

Compliance is about obeying the legal regulations and professional standards required for a particular industry. In terms of accounting, that includes filing your tax return.

It’s crucial you go with a reputed provider that understands the needs of accounting. This makes sure your software produces reports that meet stringent requirements.
MTD functionality

MTD stands for Making Tax Digital. It’s a way of ensuring businesses keep on top of tax affairs. Annually, these issues cost the UK Government billions. Check the Government’s latest rules on MTD. If you’re a VAT-registered business, you have to register for MTD. You also have to use approved software.

: Yes, there are four types of business in the UK, and each affects how the accounting is done.

These are sole traders, partnerships, Limited Companies and Limited Liability partnerships (LLPs).
: Keep records, submit an annual return and pay Class 2 and Class 4 National Insurance (the latter depending on income). You also need to check if you have to comply with MTD. If you do, you or whoever looks after your affairs needs MTD software.
: In partnerships, two or more people run the business. They have to record expenses and pay income and National Insurance on profits. Partnerships don’t have to register with Companies House or file annual accounts. They have to register with HMRC and submit a partnership return. Partners do self-assessment. This can get complex, and that means you might want to track things with good bookkeeping and tax software.
: Limited companies are their own legal entity – separate from the people who own or manage them. You have to file accounts with Companies House, send a corporation Tax return to HMRC, record all money received and spent, and ensure you have a register of people with significant control over the company. Good software will help you keep track and prepare what’s needed.
: We recommend that you consider using a bookkeeper and accountant if your business is very complex. If you go it alone, your software will help you track your income and outgoings, meet MTD obligations, prepare reports, send tax returns, and stop things from getting out of control.
: Yes. Accounting, to some extent, overlaps with other compliance issues – not least payroll. You also have to ensure you put the necessary HR policies and procedures in place as your business grows.
: Not necessarily. It has been a problem in the past, but modern cloud software should allow these different platforms to “talk” to one another. They can share information and update one another as you go.

This can save you a lot of time as you simultaneously track staff, how much you pay them and your company’s bottom line.