UK Small Business Accountant: Industry regulators are constantly updating their regulations and legal obligations, which can be a major challenge for small businesses to keep up with.
Here’s an overview of the key areas small businesses should focus on to stay compliant with rules and regulations.
What Does Compliance Mean For Small Businesses?
In business terms, compliance is about ensuring that companies of all sizes and their employees comply with existing national and international laws.
The Companies Act 2006 is the primary legislation that forms the main source of UK company law. The main purpose of compliance is to avoid criminal activity or identify criminal activity early and respond appropriately.
If you’re running or starting a small business, making sure every aspect of your operations is compliant can seem like a daunting task, but it’s worth the effort. Compliance regulations are in place to protect you, your company, your employees, and your property.
In addition to meeting legal requirements, the ethical aspects of compliance must also be considered. Essentially, a compliant company demonstrates by acting responsibly that it is a reputable company that respects the interests of stakeholders such as customers, employees, and local residents (if there is a factory, for example). This can have a positive effect on your small business’s credibility and reputation.
What Are The Main Areas Of Business Compliance To Consider?
If you’re setting up a company, some of the most important compliance considerations include:
- Complying with applicable industry regulations set out by professional regulators – for example, the Financial Conduct Authority, the Office of Rail and Road, the Law Society, or the Environment Agency
- Complying with finance regulations – such as tax, payroll, HMRC, accounting, record keeping, Companies House, and anti-money laundering regulations
- Employment law and workers’ rights
- Health and safety for workers and visitors to your offices/site
- General Data Protection Regulation (GDPR)
- Contracts and agreements with third parties
- Sector-specific permits, licenses, permissions
Ensuring GDPR Compliance
The EU’s 2018 General Data Protection Regulation (GDPR) governs how organizations process and use personal data to provide consumers with greater protection.
GDPR impacts every aspect of a business – from how you build your customer database to the way you market your business.
Noncompliance can result in a hefty fine of up to €20 million (about £18 million) or 4% of annual global turnover, whichever is greater. There are some exceptions for companies with fewer than 250 employees.
Since Brexit, GDPR are integrating into UK data protection law as ‘UK GDPR.’
Effective January 1, 2021, this version is largely similar in data protection principles and obligations.
According to the GDPR, organizations that process personal data must be able to:
- Prove that consent to retention was given
- Can indicate what the data will be used for
- Show how you are protected
- Provide individuals with access and the ability to review, change, or object to data processing practices;
What Legal Documents Do My Small Business Need?
All legal documents such as contracts, agreements, forms, letters, policies, and procedures should be regularly reviewed and updated to ensure your business is compliant. It applies to all areas and covers everything from labor and commercial law to tax, health, and safety.
Documents required by an employer are
This ensures each employee is protected by specified employment terms, which is a legal requirement and demonstrates that you have the correct policies in place:
- Employment contracts (written statement of employment)
- Grievance, disciplinary, and HR procedures
All documentation that registers your business relates to tenancy and financial arrangements or protects your business, products, and services:
- Companies House information
- HMRC papers
- Data protection documents
- Tenancy agreements
- Details of financial agreements
- Contracts for goods and services
- Intellectual property
Retain any information that is provided for tax purposes:
- Bank statements
- Record of expenses
- Past tax returns
Health and safety:
Ensure you regularly complete risk assessments and have procedures in place to log incidents:
- Display a health and safety regulations poster
- Keep accident and incident reports
- Carry out risk assessments (in writing if you have five or more employees)
- Create a health and safety policy (in writing if you have more than five employees)
What Are The Risks Of Poor Business Compliance?
Poor business compliance is simply not worth the risk. You should adopt appropriate internal controls to make sure you’re abiding by the regulations related to your company’s operations.
If your company is investigated and found to be non-compliant, you could be punished with sanctions such as fines, profit skimming, or even imprisonment.
Some other consequences and costs may be incurred, such as claims for damages by customers and business partners. Furthermore, these sanctions are not limited to an individual company but can affect the entire parent company.
In these cases, commercial insurance does not provide protection. There is also a loss of reputation and trust between business partners and customers, from which it may not be possible to recover.
The Role Of Small Business Accountants
1. Tax Compliance:
The UK tax system is very diverse, with different taxes applied to different aspects of a business. A small business accountant is knowledgeable about tax regulations, ensuring that you meet your tax obligations accurately and on time. They help you calculate taxes, claim qualifying deductions, and file returns, helping you avoid penalties and ensure your financial stability.
2. Financial Statements:
Keeping accurate financial records and producing reliable financial statements are fundamental to any business. Small business accountants ensure that your financial statements follow the appropriate accounting standards, be it UK GAAP or IFRS. Not only will this help you understand the financial position of your business, but it will also help you meet legal reporting requirements.
3. Record Keeping:
Effective record-keeping is the backbone of financial compliance. A small business accountant helps you set up systems that meticulously record all financial transactions, providing a clear audit trail. In the case of an audit or regulatory investigation, keeping your records complete and organized can save you time, reduce stress, and avoid potential legal ramifications.
4. Payroll Compliance:
Payroll management involves tax calculation, national insurance contributions, and compliance with labor laws. An accountant ensures that your payroll is accurate, complies with regulations, and meets deadlines. This minimizes the risk of costly mistakes and maintains a harmonious relationship with your employees.
5. Company Structure And Registration:
The legal structure you choose for your business has significant tax, liability, and reporting implications. A small business accountant evaluates your business goals, weighs the pros and cons of different structures, and guides you in choosing the most appropriate option. They are also assisting with the consolidation process, ensuring that all legal requirements are met.
6. Regulatory Filings:
Depending on your industry, your business may be subject to specific regulations and permits. A small business accountant helps you understand these obligations and prepare and file the necessary documents. This ensures your business is operating legally and avoids any possible penalties.
How Do I Maintain My Company’s Compliance?
Regulations are ever-changing, with new rules and updates always in place – and it’s certainly a big challenge for small businesses to keep up, but it’s important that you do it. One example is the recent change to tax avoidance laws.
From April 2021, private sector employers must follow the same rules as the public sector regarding IR35 – also known as ‘unpaid work rules.’
This means that private-sector employers are currently facing a difficult choice:
Continue to treat contractors as contractors and risk heavy fines if HMRC takes a different stance or treats them as employees with the increased costs and responsibilities this entails. However, by taking the appropriate measures, contractors and businesses can ensure that they do not violate IR35.
To reduce your risk of non-compliance, put in place internal controls such as appropriate organizational policies and procedures, regular risk assessments, internal and external audits statutory as well as process updates, keeping all relevant documents as proof of your compliance.