The Basics of Business Accounting in the UK: A Comprehensive Guide

Is small business accounting services jargon better for you? If you are starting your own business, or struggling with tax filing for the first time, here are the key terms you need to know.

Key United Kingdom tax dates

The United Kingdom tax and calendar years do not run simultaneously, so a little knowledge can make a difference when filing your taxes.

Small business accounting services Period

A period that covers specific small business accounting services functions; can be a calendar year or a financial year, but it can and does also be a week, month, or quarter. During this time, financial statements are prepared. It enables investors to compare results over multiple periods.

Financial year

This period begins on the day the company commenced business accounting, as stated in the creation of a company at Companies House, and ends one year later, the day prior to that date. The fiscal year of a limited company usually coincides with the small business accounting services period for corporation tax.

Tax year

A tax return covers 12 months. So, for example, a UK tax year starts from 6 April and runs up to 5 April of the succeeding year.

Money matters

Accountants provide a third-party perspective on spending practices by offering an informed second opinion and clarifying business accounting expenses such as worker compensation. Here are just some of the terms you might come across. 

Cash flow

Cash flow rates to the movement of money into and out of a business accounting. This can be one of two, positive or negative. It is looked at by subtracting your cash balance at the start of a period, also called the initial balance, from the cash balance at the end of the closing balance.

Turnover vs. revenue

Turnover is the total amount a business accounting generates in a particular kind of period. It is used to showcase the efficiency of a business and can include selling inventory, business capital, accounts receivable, and portfolio profit.

Revenue refers particularly to the money generated by businesses from the selling of goods or services for a price. It is used to display the profitability of an entity.

Expenses of a business

The costs run up by a business to make revenue. There are two primary categories of business expenses in small business accounting services:

  • Operating expenses – Result from the primary day-to-day work of the business
  • Non-operating expenses – not directly about the business’s core dealings. E.g., interest that is being charged on debt

Net Profit vs. Gross Profits

Net profit is the capital that is left after sales income minus all the business expenses. Contrasting to this kind of profit, the gross profit is the sales income minus the direct costs of getting the article to sell.


The reward that a company has paid its employees for a given period or at a given time. You normally have to work PAYE as part of your payroll as an employer. PAYE is His Majesties Revenue and Customs (HMRC) system to gather Income Tax and National Insurance from employment. Other payroll deductions employers must consider include:

  • Student and postgraduate loan repayments
  • Pensions
  • Child maintenance payments

In small business accounting, payroll may be handled directly by the owner or an employee. In contrast, larger business accounting may outsource the majority of payroll to a third party specializing in this activity.


One party sends money to another and creates a remittance advice statement to accompany the payment and detail what has been paid. This is particularly important if you make just one transfer, which is for several payouts.

Business Structures and Profits for small business accounting firms

Entrepreneurs from all over the earth choose to set up businesses in the United Kingdom because it is an investor-friendly country with lower start-up capital needs than most other OECD countries, has a skilled workforce, and offers a high degree of profit on investment. So if you’re considering setting up a UK business account or relocating to the United Kingdom, here are the terms you will have to be familiar with.

Business (or lawful) entity

In simplest words, a business entity is a company or organization given legal rights and responsibilities, including tax filings. It can enter into contracts as a vendor or a supplier and sue or be sued in a court of law.

The UK has four main types of business structures. These include a sole owner and a limited corporation. Each has a lot of taxation and liability results for owners and partners. 

Sole Ownership

One person owns and manages an unincorporated business, known as a sole trader or owner. This structure is the simplest because there is no legal separation between the business and the owner. If a sole proprietorship grows significantly, it can transition to a more complex accounting structure.

As the sole owner, you add your business profits to your income. You need to file the taxes as part of your tax return. Then the profits may push you into a higher tax band. Once the entity has grown to the point where your taxes are the same or higher. It is then the company tax you would have to pay. Here it is worth registering your business accounting as a limited company.

Limited company

The term “limited company” is about a type of organization in which the liquid holdings and income of the owners of the business are separate from the holdings and income of the business.

If one has a limited company, in addition to the Self Assessment tax return, one must file annual accounts with the Companies House and pay Corporation Tax on the earned profits. Profits from limited entities are subject to UK Corporation Tax, which is right now set at 19%.

Our small business accounting services team can help one set up a limited company in one business day.


When a company generates profit, it can choose to reinvest the money back into the business or distribute it among shareholders as “dividends.”

If you run your business accounting as a limited business, the most tax-efficient method to get funds out of the company is usually through dividends. This is because dividend income that falls below your Allowance (the amount you can earn per year without paying tax) is tax-exempt.

Return On Investment

Investors use the return on investment (ROI) method to assess the profitability of their investments or compare the performance of multiple investments.

Investors can use ROI to value their portfolios and almost any expense to determine the most suitable or attractive investment options. Business owners should consider how much time and effort they invest in accounting to determine their ROI.

Understanding your UK taxes

Small businesses must pay tax on their total tax-worthy profits and chargeable gains for each accounting services period. A good small accountant can help one to navigate the tax system, determine which taxes apply to you, and help you save money.

The basic rate of tax

Individuals who earn between £12,571 and £50,270 in the UK must pay a basic income tax rate of 20%.

Personal Allowance

You can earn this without paying income tax (currently £12,570). However, you pay tax on all income above this level at the applicable income tax rate.

The standard rate of tax that you pay at the basic rate is currently 20 percent.

 Corporation Tax

Tax paid by UK limited companies and some other organizations. It is based on the yearly profits a business accounting makes. Although all profits are tax worthy, there are allowances to assist in reducing your tax burden.

From 1 April 2023, the real rate of company Tax will go up from 19% to 25%.You need to complete a P11D statutory form if your company falls under the category of single companies with profits of less than £50,000 or if it receives marginal relief due to profits between £50,000 (lower limit) and £250,000 (upper limit). Additionally, a 19% corporation tax rate will be applicable to single companies with profits of less than £50,000..


Individuals must submit their Self Assessment tax return and include goods or services such as private healthcare, company automobiles, or season ticket loans.You need to submit the submission to His Majesty Revenue on a yearly basis.

Self Assessment tax return

A system in use by HMRC to rope in Income Tax. Individuals, including self-employed people and directors of limited companies. These companies have to complete and submit a Self Assessment tax return the latest by 31 January after the end of the financial year. 

Unique Taxpayer Reference

A ten-digit number that assists HMRC in identifying you or your company’s tax account. Also, this has to be matching your payment to your bill. Every UTR is specific to each UK taxpayer who must file a business accounting tax return.

National Insurance

As a self-employed individual in the UK, it is your responsibility to pay taxes and National Insurance. This is on your income.Your NI number is used by HMRC to record your contributions and taxes on your account. Make sure to keep track of your income and pay your taxes. Also, National Insurance on time to avoid any penalties or legal issues. One can apply on the internet for a National Income tax number at any point in time, and once one has received it, you have it for times. 

Value-Added Tax (VAT)

A consumption tax levied on the purchase price of goods and services, payable to HMRC. Business accounting must register for VAT if their VAT-taxable turnover is more than or exactly £85,000, but they can also choose to sign up if their turnover is less than £85,000.

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