How to manage my business accounts

A good starting point is to establish a regular bookkeeping routine. Set aside time each week to record transactions, deal with invoices and receipts and check that your records are complete.

Using accounting software can make many routine tasks easier. Depending on the software you choose, it may allow you to:

• record income and expenses
• create and send invoices
• connect to your business bank account and import transactions
• keep digital copies of receipts
• monitor amounts owed by customers and to suppliers
• reconcile your bank account
• produce reports to help you understand how your business is performing.

Keeping your records up to date also gives you more useful information about your cash flow and financial position, rather than having to reconstruct your accounts when a tax or filing deadline approaches.

You don’t necessarily have to manage every aspect of your business finances yourself. Depending on your needs, you could use a bookkeeper, accountant or both.

A bookkeeper can help with the day-to-day recording of financial transactions and tasks such as invoicing, recording purchases and expenses and reconciling bank accounts.

An accountant may provide services such as preparing annual accounts and tax returns, calculating tax liabilities and advising on financial and tax matters.

Many small business owners choose to do some bookkeeping themselves, often using accounting software, while using a bookkeeper or accountant for other tasks. The right approach will depend on the complexity of your finances, your own knowledge and the time you have available.

If you use an external bookkeeper or accountant, make sure you understand which tasks they’ll carry out and which remain your responsibility.

Bookkeeping involves recording and organising the financial transactions of your business so that you have accurate and up-to-date financial records.

Typical bookkeeping tasks include:

• recording sales and other income
• recording purchases and expenses
• keeping invoices and receipts
• raising and sending customer invoices
• recording amounts received from customers and paid to suppliers
• monitoring unpaid invoices
• reconciling your bank account and, where applicable, petty cash
• maintaining payroll records if you employ people.

Accurate bookkeeping provides the information you need to monitor your business finances, prepare accounts and complete tax returns.

Accounting or bookkeeping software can automate or simplify many of these tasks. Keeping digital records can also make it easier to find information, share records with your accountant and meet relevant tax requirements.

If your business is VAT registered, your bookkeeping records will also need to contain the information required to account for VAT.

You’ll generally need to record the VAT you charge on taxable sales and the VAT you pay on business purchases. This information is used to prepare your VAT returns and calculate how much VAT you need to pay to HMRC or may be able to reclaim.

VAT-registered businesses must keep certain records digitally and use Making Tax Digital compatible software to submit their VAT returns.

VAT has detailed rules covering matters such as registration, VAT rates, record keeping and reclaiming VAT. Find out more in our guide about VAT.

If you run a limited company, you must keep accounting records that enable the company to prepare its annual accounts and work out its Corporation Tax liability.

These will normally include records of:

• money received and spent by the company
• sales and purchases
• assets owned by the company
• debts the company owes or is owed
• stock held at the end of the financial year, where applicable
• calculations and other information needed to prepare the company’s accounts and Company Tax Return.

Your accounting records provide the underlying information used to prepare the company’s statutory accounts and Company Tax Return and calculate the Corporation Tax due.

A limited company also has other record-keeping and reporting responsibilities, including records about the company itself. Find out more in our guide about Corporation Tax.

If you’re self employed, the records you keep for your business are used to calculate your taxable profits and provide information needed to complete your Self Assessment tax return.

Your taxable business profit is broadly based on your business income less allowable expenses and other relevant deductions. It’s not based on how much money you take out of the business for yourself.

You’ll need to keep appropriate records of your business income and expenses and use these to report the required information to HMRC. You may also need to report other sources of taxable income through Self Assessment.

HMRC sets deadlines for submitting your tax return and paying any tax due, and penalties and interest can apply if you miss them.

Find out more in our Self Assessment tax returns for sole traders guide.

If your business employs people, you may need to operate PAYE (Pay As You Earn) as part of your payroll.

PAYE is the system employers use to calculate and deduct Income Tax and National Insurance from employees’ pay and report payroll information to HMRC. Employers may also need to make other deductions, such as pension contributions and student loan repayments, and pay employer National Insurance where applicable.

Your business will need to maintain accurate payroll records and use suitable payroll software to report the required information to HMRC. Most employers must report payments and deductions each time they pay their employees through a Full Payment Submission (FPS).

Even if you use a payroll provider, bookkeeper or accountant to manage payroll for you, the employer remains responsible for making sure its PAYE obligations are met.

Read our guide to operating a payroll for more information.

You need to keep records that support the figures in your accounts and tax returns and show the money coming into and going out of your business.

Depending on your business, these may include:

• sales invoices and records of other business income
• purchase invoices and receipts
• bank statements and other payment records
• records of business expenses
• VAT records if you’re VAT registered
• payroll records if you employ people
• details of business assets and stock
• calculations used to prepare your accounts and tax returns.

Records can usually be kept digitally or on paper, although some businesses are required to keep certain records digitally, for example under Making Tax Digital.

You must keep your records for a specified period in case HMRC needs to check them. How long you need to keep them depends on your business structure and the taxes involved, so check the relevant HMRC guidance rather than disposing of records once your accounts or tax return have been completed.

Good record keeping isn’t just about meeting your legal obligations. Keeping accurate, up-to-date records can also help you monitor cash flow, understand how your business is performing and make better financial decisions.