Early stage small business accountancy: what you really need to know

For tons of entrepreneurs, early-stage accounting is the first thing to get to grips with as your small business gets going. You might have an idea of your branding, your sales pitch and your growth strategy, but that doesn’t mean you’ve ever planned out your accounts. We asked Brian Palmer, AAT Tax Policy Adviser, for his ‘early stage accountancy’ top tips and here they are.

Think wisely about your business entity 

Whatever legal business structure you decide to be, you have to register with HM Revenue and Customs (HMRC). The best advice that I can give you is always to seek professional advice and guidance as early as possible if you are unclear over the legal form that you should adopt. 

It is vital that you understand the difference between the various business structures: sole trader, partnership, Limited Company and Limited Liability Partnership. A few pounds spent on upfront advice could save you many, many more later.

Sole trader and Partnership

The process of starting in business either as a sole-trader or in partnership is relatively straightforward; all you are required to do is register with HMRC. You don't even have to publish accounts and you only pay tax on the profits you make or, in the case of a partnership, your agreed share of the partnership’s profits. 

The downside is that you have little security and no limitation on your personal liability. In fact, in the case of a partnership, you would be liable to pay your partner’s share of the partnership’s debt. Furthermore, from a tax perspective, all profits that accrue, to you, will be subject to Tax and National Insurance on you, personally, in the year in which they arise.

Limited Company

Trading via a limited company means that you will need to comply with far more red tape. Not only do you have to form a company via Companies House and advise HMRC when it is about to trade, you will also need to set up and operate a payroll, even if you are the sole employee.

The advantages are that you benefit from a shield of limited liability, which means in most circumstances that your personal assets are protected if your company fails.  

Limited Liability Partnership (LLP)

This type of entity is relatively new. It is, in effect a hybrid between a partnership and an ordinary limited company.  It affords the owners the same limitation of liability that an ordinary limited company does.  However, each individual owner is taxable on their share of profit in exactly the same way as a partner involved with an unincorporated partnership would be.

An LLP also presents its owners with the same red tape challenges as an ordinary limited company. Whilst undoubtedly there are times when an LLP might be the right trading vehicle, if you are considering it as an option I would strongly recommend that you seek and take professional advice.


  • It is important to not only think about your business requirements at the outset but perhaps more importantly what they might be in the future. This will help you to make the right choice.
  • Whichever structure of the business that you opt for will have consequences on the requirement to maintain records and the amount of red tape that you have to grapple with.
  • The fact is that each type of trading entity is taxed differently.

Implement an accounting system that works for your business model

I may be stating the obvious but it’s imperative that your accounting information is accurate. Ask yourself from day one – “Is it worth investing in a part-time bookkeeper?”  In my opinion, a good bookkeeper is worth their weight in gold.  They will allow you to concentrate on what you are good at while they do what they are good at i.e. look after your books.

Remember you face stiff penalties for incorrect record keeping, the late submission of returns and statutory accounts. With this in mind, you should consider how you manage processes to avoid incurring costs associated with non-compliance.

HMRC has invested heavily in its digital infrastructure and as a result, is encouraging businesses to report online in a digital capacity. Not only can you take advantage of a whole host of free resources by filing and paying your VAT return electronically, you can also benefit from extended payment deadlines. Startup businesses would be wise also to take advantage of simplified reporting e.g. the VAT flat rate scheme  

Knowledge is king

Gaining some basic accountancy knowledge will allow you to have a better relationship with your bookkeeper and accountant. You will be able to use your bookkeeper/accountant for a higher level of expertise and can monitor their competitors by having a firm understanding of their annual reports.

There is little excuse to turn a blind eye. There is an array of resources available to the SME market and many are free. Check out GOV.UK, Companies House and HMRC.

Smarta Tax Services - the perfect solution for start-ups or Sole Traders in need of tax and accounting support. Get a personal experience with a dedicated Accountant that will ensure you keep track of day to day operations of your business, and you've completed all areas required to comply with HMRC and Companies House.  Our trusted accountancy software allows transparency and you'll have 24/7 access online, so you can keep track of your business performance.

We use cookies to create the most secure and effective website possible for our customers. Full details can be found here