We answer some of the most common questions new businesses owners just like you have, including:

• Does a startup business need an accountant?
• What bookkeeping software should I use?
• How do I know which is the right accounting system for my business?
• What financial records do I need to keep?

Does a startup business need an accountant?

Technically, no. If you’re willing and able to take on the accounting yourself then you can go ahead and add this to your internal processes. That said, there are many, many advantages to using an accountant, especially for a new venture where time and money are so critical.

Some of the main benefits of hiring an accountant for your startup:

• They’ll help you stay on track with important HMRC deadlines that you might not be familiar with yet
• Guidance to help you choose the best structure for your business, and to set it up correctly
• Confidence that your tax returns and accounts are accurate, and that you’re paying the right amount of tax (including claiming any allowable expenses so that you don’t pay too much tax!)
• Access to advice about running your business as efficiently as possible so you can manage your budgets and cash flow
• Help to prepare for Making Tax Digital (MTD) changes
• Advice about using the best accounting system for your business (which we’ll come back to further on).

What bookkeeping software should I use?

There are a number of ways bookkeeping processes can be carried out, but cloud-based tools are by far the most effective for modern business owners.

The main benefits of opting for cloud-based bookkeeping software are:

• Access to your accounts at any time, from anywhere in the world with an Internet connection
• Simple automation of many time-consuming accounting processes
• Remote multi-user access to streamline your teamwork
• Access to integrated, expert support
• You’ll be well-prepared for changes under Making Tax Digital

Top tip: Choose HMRC-recognised bookkeeping software so that your records are MTD-compliant.

How do I know which is the right accounting system for my business?

When you start your business, you’ll need to think about how to set-up your bookkeeping, and which accounting method to use; cash-basis or traditional (accrual) accounting. 

• Traditional - or accrual basis – accounting requires you to account for every invoice sent and received, even if it hasn’t been paid yet. This can mean that you’ll end up paying tax, even if the customer hasn’t paid you yet.
• Cash basis accounting is your other option and arguably the best choice for small and startup businesses. This method means you only need to account for invoices and expenses when they’re actually paid, so you won’t have to pay income tax on unfulfilled customer payments. 

It’s worth noting here that you can only use cash basis accounting until your annual turnover exceeds the regulated threshold, which is currently set at £300,000.

What financial records do I need to keep?

Official guidance (and best practice) says that you should keep the following information about your business’s records:

• All money received by the business, which includes grants and other funding, as well as other income streams such as sales and invoices.
• Details of any debts owed to the business
• All money spent
• Details about any debts owed
• Any assets owned by the business  
• Stock and inventory
• Goods bought and sold and who they were sold to or bought from - excluding retail businesses
• Bank statements and any other relevant documentation

Limited companies will need to keep hold of these records for a minimum of 6 years following the close of the last financial year they relate to. For sole traders this is 5 years. There are cases in which records will need to be retained for even longer, such as if you make a late Company Tax Return submission.

Hopefully you’re now feeling clearer about what accounting and bookkeeping responsibilities you have towards your startup venture.

It’s always useful to consult with an accountant or other finance professional who can guide you around things like Making Tax Digital, bookkeeping software or choosing the right accounting system. Nobody wants to pay more tax than they should be, and this is what accountants are good at!