Getting Started with Bookkeeping for Your UK Limited Company

Starting a limited company is exciting, but it also means taking on new responsibilities—including proper bookkeeping. Even if you're running a very small business, keeping good financial records isn't optional. It's a legal requirement, and it's essential for understanding how your business is performing.

The good news? For UK micro-entities (very small limited companies), bookkeeping doesn't have to be complicated or time-consuming. This guide will walk you through the essentials.

Why Bookkeeping Matters

Before we dive into the how-to, let's quickly cover why bookkeeping is so important:

• Legal requirement: All UK limited companies must keep adequate accounting records
• Tax compliance: You need accurate records to complete your tax returns
• Business health: Good records help you understand if your business is profitable
• Decision making: Financial data helps you make informed business decisions
• Proof of transactions: Records provide evidence if HMRC queries your accounts

Step 1: Set Up a Business Bank Account

Your first step should be opening a dedicated business bank account for your limited company. This is legally distinct from your personal finances.

A separate business account:

• Makes it much easier to track business transactions
• Looks more professional to clients and suppliers
• Helps maintain the legal separation between you and your company
• Simplifies bookkeeping significantly

Step 2: Understand What Records You Need to Keep

For a UK limited company, you need to keep records of:

• All money coming into the business (sales, other income)
• All money going out of the business (expenses, purchases)
• Assets owned by the company (equipment, vehicles, etc.)
• Money owed to you (if you invoice customers who pay later)
• Money you owe (unpaid bills, loans)
• Stock or inventory (if applicable)

You must keep these records for at least 6 years from the end of the financial year they relate to.

Step 3: Choose Your Accounting Method

For very small companies (micro-entities), you'll likely use one of two methods:

Cash-Basis Accounting

Record income when money arrives in your bank, and expenses when money leaves. This is simpler and works well for many micro-entities.

Accruals Accounting

Record income when you invoice (even if not yet paid), and expenses when bills arrive (even if not yet paid). This is more complex but may be necessary if you're VAT-registered.

Most micro-entities not registered for VAT will find cash-basis accounting simpler and perfectly adequate.

Step 4: Keep Receipts and Invoices

Every time money moves in or out of your business, you should have supporting evidence:

• For sales: Issue invoices (even if it's just a simple document or email confirmation)
• For expenses: Keep receipts, even for small purchases
• For bank charges: Keep bank statements showing fees and charges

You can store these digitally (take photos of paper receipts) or keep them physically—just make sure they're organised and accessible.

Step 5: Record Transactions Regularly

Don't wait until year-end to sort out your bookkeeping. Set aside time each week or month to:

1. Download your bank statement or transactions
2. Match each transaction to a receipt or invoice
3. Categorise each transaction (what was it for?)
4. Record everything in your bookkeeping system

Regular bookkeeping (even 30 minutes a week) is much easier than trying to reconstruct 12 months of transactions at year-end.

Common Transaction Categories

Most small businesses will categorise transactions into common groups like:

• Income: Sales, other income
• Cost of sales: Direct costs to deliver your product/service
• Operating expenses: Rent, software, equipment, travel, marketing, professional fees
• Capital items: Significant assets like computers, vehicles
• Owner transactions: Director's salary, dividends, loans

Your accountant can help you set up categories that make sense for your specific business.

When to Get Professional Help

Even if you do your own bookkeeping, it's wise to work with an accountant who can:

• Help set up your bookkeeping system correctly
• Review your records periodically
• Prepare and file your annual accounts
• Complete your company tax return
• Advise on tax-efficient ways to run your business

Many small companies do their own day-to-day bookkeeping but have an accountant review everything annually. This can be a cost-effective approach.

Next Steps

Good bookkeeping is a habit. Start simple, stay consistent, and don't be afraid to ask for help. As your business grows, you can always add more sophisticated systems and processes.

The most important thing is to start keeping records from day one. Future-you will be grateful when it's time to file your accounts!