What is a small company?
Before we get into the details on how to complete accounts for a small company, let’s discuss what a small company actually is! There are two types of company accounts that you can complete through our software – small company accounts or micro company accounts.
Micro Companies:
Companies are considered as micro entities if they have two of the following:
- A turnover of £1 million or less
- A balance sheet total of £500,000 or less
- 10 or less employees
If the company you are filing for meets two of these criteria, then it can file its accounts under FRS 105, which is solely for micro entities. This financial reporting standard offers a much simpler income statement and balance sheet which reflects the nature of micro entities, since they are smaller and have less complicated figures, while still following all of the necessary legal requirements set out by HMRC and Companies House.
If you are looking to file as a micro entity, then it might be useful to read our article ‘How to Create Micro Entity iXBRL Company Accounts’.
Small Companies:
If your company exceeds the thresholds for a micro entity, you may need to file as a small company accounts instead. The thresholds for small companies are as follows:
- A turnover of £1 million or less
- A balance sheet total of £500,000 or less
- 10 or less employees
Once again, your company must meet at least two of the criteria from above in order to be considered as a small entity. They will then need to file accounts under FRS 102, which is for small entities. This is a much more complex standard which a more detailed breakdown of the income statement and balance sheet, and also offers more notes to the balance sheet which includes additional disclosures, provisions, and exemption statements.
There are some exceptions where you will need to file under FRS 102 instead of FRS 105, even if your turnover, balance sheet, or employees meet the micro thresholds – one of which is if you have revalued a fixed asset item, such as a property, or if you have any deferred tax. Since micro entity accounts are very simple, they are not always compatible with the figures that you need to file! It is important to remember that you can file under any reporting standard in which the thresholds are greater than your actual threshold, however, you cannot file under a lower standard with smaller thresholds than your company’s actual figures meet. So, companies who meet the FRS 105 criteria can file as either a micro or small entity, but not vice versa.
How to Complete the Income Statement:
Completing the income statement for a small company is relatively simple and does not differ much from the micro accounts. There are more categories within each heading, however, it just offers you more choice to select the category that you feel is most appropriate for the expense. Let’s take a look at the different headings within income and expenses, and what they mean.
Income:
This section is similar to the micro company accounts, as it offers various different categories where you can enter the income for the accounting period. The only difference is that it does not include the gain on foreign exchange, as this is in a separate section within the small accounts.
It includes:
- Turnover – sales, carriage on sales, other income, interest income and similar, and investment income
If the income that you received in the accounting period does not fall within any of those categories, you can just enter it within the Other Income box, as there will be a section in the tax return itself where you can offer further details on it.
Gains and Losses:
This section covers gains or losses from various transactions, such as foreign exchange difference, sales of assets, and more.
- Gains and losses – due to foreign exchange differences, sale of tangible assets, sale of intangible assets, revaluation of intangible assets, sale of investment property, revaluation of investment property, sale of investments, and revaluation of investments
If you made a sale or you revalued your property for a greater value, then you would enter the number as it is within the relevant box, however, if you made a loss on a sale or your item was revalued for less, then you would need to add a negative sign in front, so that it can be deducted.
Expenses:
- Cost of sales – purchases, subcontractor costs, hire of plant and machinery, other direct costs, distribution, and letting agency fees
- Staff costs – wages and salaries, directors’ salaries, pensions, employers’ national insurance, temporary staff and recruitment, training, travel, motor, other staff costs
- Business premises costs – rent, rates, lighting and heating, service charges, cleaning, other premises costs
- Professional costs – legal fees, accountancy fees, insurance costs, advertising costs, consultancy fees, other professional costs
- Other expense – telephone, office costs/stationary, computer software, depreciation and amortisation, entertainment expenses, repairs and maintenance, bad debt, bank charges, interest payable and similar expenses, commission payable, subscriptions, charitable donations, travel and subsistence, motor expenses, and other expenses
Taxation:
Outside of the general expenses for the small company, there is also a section within the income statement for taxation. This includes the corporation tax that Is due for the current accounting period (under Tax Due), any adjustment figures like a refund, etc. (under ‘Prior Year Adjustment’), and any deferred tax (Tax Deferred).
If you unsure how much tax is due for the current accounting period, you can leave that box blank until you have completed the CT600 return – as the tax due figure will appear on the Tax Calculation page. Then, you can reopen your small accounts template and enter that same figure under ‘Tax Due’.
How to Complete the Balance Sheet:
After you have completed the income statement, you will need to move on the balance sheet. It is important to remember that HMRC requires both the income statement and balance sheet to be submitted alongside the tax return, and Companies House requires the balance sheet – so it is really important that you make sure you complete this as well!
The balance sheet shows a company’s overall financial position – how much it owns, how much is owed to them, and how much they owe to others. This is split into different categories – fixed assets, current assets, and creditors due. Let’s discuss what to include in each of these sections.
Fixed Assets:
In the small company accounts, there are different sections where you can enter your fixed assets depending on what they are.
- Intangible fixed assets – these are non-physical assets that companies may own, such as patents, trademarks, or copyrights. They have a long-lasting value and are owned by the small company, but are not physically held within the business.
- Tangible assets – these are physical items that the business owns such as properties, land, machinery, cars, vans, computers and more. They won’t have as long of a lifetime as intangible assets but are still useful for the business to own. Often times, you can claim capital allowances on these types of items as a way to reduce your tax due – you can read more on this in our article ‘How to claim capital allowances on a corporation tax CT600 return’.
- Investment Properties – these are properties that the business owns with the intention of generating income from it, either through rental payments or by fixing it up and selling it for a profit. The key with investment properties is that they are not used by the business or director either as offices, or for private use.
- Investments – this can include investments in subsidiaries, or other listed or unlisted investments, which could include shares in a company, etc.
It is important to remember that in the small company accounts, you will need to enter the starting balances for the items themselves as well as the starting accumulated depreciation or amortisation values – then, the current year depreciation/amortisation would go under the ‘Charge for year’ box. If there were any disposals (when you get rid of an asset), or additions (when you purchase an asset), these will need to be reflected here within the fixed asset breakdown as well.
Current Assets:
As well as fixed assets, companies have current assets – these are things are they have or are owed to them, so it could include any cash the business has, or any debtors owed to them, etc.
- Stocks – these are the goods that the small company owns which they sell to the customers.
- Debtors – this includes the trade debtors, other debtors, and prepayments or accrued income. These are either people or businesses that owe you money, because the small company gave them a loan, or because there are unpaid invoices that were issued to them.
- Cash at bank and in hand – this is all the money that the business has left at the end of the accounting period. This includes any petty cash, and anything in the business’ bank account, including any savings accounts.
Creditors due within one year and after one year:
Now that we've covered what assets are for a small company and where to reflect your figures, we also need to look at the liabilities side of the balance sheet. This includes anything that the small company owes – either to other businesses, to the director, to people, etc.
There are two sections for liabilities in the balance sheet – one is the short-term creditors, or creditors due within one year, and the other is the long-term creditors, or creditors due after one year. The headings within these sections are almost identical, so it is up to you to determine whether the small company will be expected to repay the loan within the next accounting period, or if it will be later than that.
Some examples of short-term creditors are VAT or corporation tax, as these are due within one year after the accounting period has ended. Other creditors, such as directors’ loans or bounce back loans typically take longer than a year to repay, so they would be considered as long-term creditors instead.
Here are the headings for both short-term and long-term creditors:
- Bank loans and other overdrafts – this could be any credit cards balances that are due, or other bounce back loans, etc.
- Trade creditors – these could be suppliers that you owe for unpaid invoices, etc., as these creditors directly relate to the business’ trade.
- Corporation tax – this is the corporation tax due for the small company.
- Other tax and social security – this are any other tax such as VAT that is due, or PAYE/NIC’s that haven’t been paid.
- Finance leases – this is the remaining amount due on any leases such as car leases, etc.
- Other creditors – this is anything else that the small company owes, such as loans to the director.
- Accruals and deferred income – this is income that has been received for services that have not yet been provided, or it is income that has been earned because the service was provided but not yet received.
There is also an additional heading just for long-term creditors, which is ‘Provision for liabilities’ – this is an expected creditor that has not yet been paid, but is expected to be paid in the future.
Share and Reserves:
This section includes the shares and other reserves that the small company has. The most commonly used box is the Share Capital – as this includes the shares that the company issued at incorporation, along with any issued after. You can also find share premium, revaluation reserve, capital redemption reserve, capital contribution reserve, and other reserves within this section for you to complete, if relevant.
Retained Earnings:
In the micro company accounts, you are expected to calculate the capital and reserves yourself, then enter that figure within the box. However, in the small company accounts, there is much more of a breakdown so that you can get a better picture of how the company performed that accounting period, and how it affects the overall value of the business.
- Retained earning at start of period – this is the capital and reserves or shareholder funds that the small company had at the end of the last accounting period. You simply need to enter that figure in this box, as they are carried forward.
- Profit/loss for the period (after tax) – this is the final net profit value that you can find on the income statement. Please ensure you enter the figure after tax has been deducted.
- Dividends paid – this is the total dividends that were taken out of the company and distributed within that accounting period.
- Other – there is nothing specific to enter into this box, as it is just there if you need to enter any adjustments for the accounting period, or other figures.
Net Current Assets, Net Assets, & Retained Earnings:
These are boxes that are automatically populated for you, based on the other entries that you make in the balance sheet.
- Net current assets – this is the total of all your fixed and current assets, minus your short-term liabilities (creditors due within one year).
- Net assets – this is all your assets minus all your liabilities. So, this is the fixed assets, plus the current assets, minus the creditors due within one year, minus the creditors due after one year.
- Shareholder’s Funds – this is made up of the shares that the company has, plus any retained earnings.
Hopefully after reading our comprehensive guide on completing your accounts for a small company, you will be able to do them yourself! Simply head over to our website Easy Digital Filing to create your account and start filing with us today. Alternatively, if you are still struggling, you might be interested in one of our managed filing services instead, where we complete them for you. Head over to E Company Tax instead to see if this is the right option for you.
