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How Do Contractor Accountants Handle Mileage Claims?
Posted inUncategorized

How Do Contractor Accountants Handle Mileage Claims?

Understanding the Basics of Mileage Claims for Contractors When I sit down with contractors – whether they're IT consultants dashing between client sites in London or builders travelling across the…
Posted by Eloise November 26, 2025
What Are the Annual Account Obligations for Small Companies? Running a small limited company in the UK brings a set of recurring annual obligations. Many directors, especially those new to incorporation, underestimate how structured and interlinked these obligations are. Annual accounts in the UK are not merely a formality — they underpin the company’s tax return, determine Corporation Tax liability, and act as the public record that demonstrates transparency to HMRC, Companies House, and other stakeholders such as lenders or potential investors. This first part of the article focuses on the core accounting obligations for small companies: statutory accounts, Companies House filing, Corporation Tax submissions, and practical compliance timelines. The guidance reflects current UK legislation as of the 2025/26 tax year, integrating both HMRC and Companies House requirements. Understanding What “Small Company” Means for Accounting Purposes Before exploring the obligations themselves, it’s important to confirm what constitutes a small company under UK law. Under the Companies Act 2006, a company qualifies as small if it meets two or more of the following criteria: Criterion Threshold (2025/26) Annual turnover £10.2 million or less Balance sheet total £5.1 million or less Average number of employees 50 or fewer These limits have remained stable in recent years, but it’s crucial to monitor them annually, as thresholds can change through statutory instruments. If your company exceeds these limits, even marginally, it may instead qualify as a medium-sized company, which brings heavier disclosure and auditing obligations. The Foundation: Statutory Annual Accounts Every limited company registered in the UK — regardless of whether it traded actively or not — must prepare statutory annual accounts for each accounting period. Statutory accounts form the cornerstone of compliance. They must be prepared according to the UK’s Financial Reporting Standards (FRS). Most small companies apply FRS 102 Section 1A, a simplified accounting framework suitable for entities that do not require a full audit. A typical set of small company accounts must include: A balance sheet, showing the company’s assets, liabilities, and shareholders’ funds. A profit and loss account, showing income, expenses, and profit or loss for the financial year. Notes to the accounts, explaining key accounting policies and any material figures. In most cases, a director’s report — though micro-entities may be exempt. Example in practice A small construction company, for instance, might close its books on 31 March 2025. Its accounts would show turnover from projects, materials costs, director salaries, dividends, and depreciation on tools or vans. Even if turnover is modest, the director must ensure proper disclosure of related-party transactions — such as if the company rents a van owned personally by the director — to comply with FRS 102 requirements. Filing Deadlines and the Accounting Reference Date Every company has an Accounting Reference Date (ARD) — effectively its year-end date for Companies House purposes. The first ARD is automatically set as the last day of the month in which the company’s first anniversary falls. For example: If a company was incorporated on 15 July 2024, its first ARD is 31 July 2025. The first set of accounts normally covers more than 12 months (from incorporation to the ARD), but later periods are exactly 12 months. Filing deadlines are strict: For the first accounts, they must be filed within 21 months of incorporation. For subsequent years, the accounts must be filed within 9 months of the ARD. Missing these deadlines leads to automatic Companies House penalties, which escalate rapidly: Delay Penalty (small company) Up to 1 month £150 1–3 months £375 3–6 months £750 More than 6 months £1,500 If the accounts are late two years in a row, the penalties double. The Link Between Annual Accounts and Corporation Tax One of the most common misconceptions among small business directors is that the Companies House filing and the Corporation Tax filing are the same. They are not. While the same underlying financial information is used, they are separate submissions to two different bodies: Companies House requires statutory accounts. HMRC requires accounts and a Company Tax Return (form CT600) as part of the Corporation Tax filing. A small company must file its Corporation Tax return within 12 months after the end of the accounting period. However, any Corporation Tax due must be paid within 9 months and 1 day after the accounting period ends. Example scenario A small design agency with a year-end of 31 March 2025 must: Pay its Corporation Tax (if any) by 1 January 2026. File its CT600 and supporting accounts by 31 March 2026. The timing often confuses new directors, but experienced practitioners always recommend aligning bookkeeping and draft accounts preparation soon after year-end. Waiting until the deadline approaches creates unnecessary pressure and risks late filing penalties. The Corporation Tax Calculation in Context Corporation Tax is charged on the company’s profits, not turnover. From April 2023, the UK returned to a tiered Corporation Tax rate: Profit Band Applicable Rate Notes Up to £50,000 19% “Small profits rate” £50,001 to £250,000 Marginal relief applies Gradual tapering Above £250,000 25% Main rate These thresholds are divided by the number of associated companies. For example, if a director owns two trading companies, each threshold is halved. A small company with profits of £40,000 pays 19% (£7,600). A company with profits of £120,000 pays tax at a blended effective rate due to marginal relief, roughly 22.75%. HMRC’s online calculator or professional tax software handles this calculation precisely. Digital Filing Requirements and Software All small companies must file their Corporation Tax returns digitally, using either HMRC’s free online service (for micro-entities) or commercial accounting software compatible with HMRC’s iXBRL standards. Since Making Tax Digital (MTD) for Corporation Tax is on the horizon (expected to become mandatory later in the decade), directors should future-proof their accounting systems now. Using software like Xero, QuickBooks, or FreeAgent not only simplifies bookkeeping but also ensures automatic compliance with iXBRL tagging — an often-overlooked technical requirement when submitting accounts to HMRC. Dormant or Non-Trading Companies Even a company that has not traded must still meet annual obligations. Dormant accounts can be filed using a simplified online process with Companies House. However, “dormant” has a very specific meaning. A company is only dormant if it has had no significant accounting transactions during the financial year. Paying for web hosting, bank charges, or a Companies House filing fee usually means it is not dormant, and full accounts are required. I’ve seen many directors inadvertently file dormant accounts while the company had small expenses — which can later trigger a compliance query from HMRC. Always double-check your company’s trading status before submission. The Director’s Personal Accountability Ultimately, the company’s directors are legally responsible for ensuring accounts are prepared and filed correctly and on time. Even if an accountant handles the work, the director’s signature appears on the balance sheet declaration: “The accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.” Failing to file or submitting false accounts can lead to civil penalties or, in serious cases, disqualification proceedings. For small private companies where the director and shareholder are the same person — which is typical among UK contractors, consultants, and landlords who’ve incorporated — the responsibility cannot be delegated away entirely. What Are the Annual Account Obligations for Small Companies? Part 1 explored the foundations of statutory accounts, filing deadlines, and Corporation Tax compliance. In this second half, we’ll move deeper into the surrounding obligations that small companies often overlook — from audit exemptions and confirmation statements to record-keeping standards, digital filing, and HMRC enquiry risks. The focus here is practical compliance: what small company directors must actually do each year to remain on the right side of HMRC and Companies House, and how to avoid the common pitfalls that I’ve seen derail otherwise well-run small businesses. Audit Requirements and the Small Company Exemption Many directors assume all limited companies must be audited, but that’s rarely the case. Most small companies qualify for an audit exemption under the Companies Act 2006, provided they meet at least two of the three small-company thresholds mentioned earlier: Turnover of £10.2 million or less Balance sheet total of £5.1 million or less 50 or fewer employees However, there are exceptions. Even small companies may require an audit if: The company is part of a group that fails to qualify as small. The company’s articles of association or shareholders specifically request one. It is involved in certain regulated sectors (e.g., insurance, banking, or pensions). Practical insight In practice, most private limited companies run by owner-directors do not require an audit. Yet, some voluntarily opt for one when applying for finance or tendering for public-sector contracts, as audited accounts carry greater credibility. The Annual Confirmation Statement Separate from annual accounts, every UK company must file a Confirmation Statement (formerly the “Annual Return”) to Companies House at least once every 12 months. The statement confirms that the company’s key information remains up to date, including: Registered office address Directors and company secretary (if applicable) Shareholders and shareholdings SIC (business activity) codes People with Significant Control (PSC) The fee is modest — currently £13 for online filing or £40 on paper — but failing to file can lead to the company being struck off the register. In my experience, it’s easy for directors to forget this filing when they’re focused on their accounts. Many accountants schedule both tasks together to ensure continuity: preparing the accounts, then reviewing and submitting the Confirmation Statement immediately afterward. Record-Keeping: The Bedrock of Compliance The Companies Act 2006 and HMRC regulations both require small companies to maintain adequate accounting records. The statutory minimum retention period is six years from the end of the financial year. These records must enable the company to: Show and explain its transactions. Disclose its financial position with reasonable accuracy. Prepare compliant accounts at any time. Examples of essential records include: Invoices and receipts for sales and purchases. Bank statements, loan agreements, and credit card statements. Payroll records (including PAYE submissions and P60s). VAT returns and supporting calculations. Dividend vouchers and minutes of board decisions. Failure to keep adequate records is a criminal offence under company law, though enforcement usually arises in the context of HMRC investigations or insolvency proceedings. Common real-world issue I’ve seen countless cases where small companies rely entirely on digital bank feeds without keeping proper supporting invoices. While accounting software such as Xero or QuickBooks simplifies data capture, the legal obligation still rests on the company to retain underlying evidence for every transaction. Digitalisation and the Coming Wave of “Single Sign-In” Compliance The UK government is gradually aligning Companies House and HMRC systems through digital integration. The Economic Crime and Corporate Transparency Act 2023 will, once fully implemented, require: Identity verification for all directors and PSCs. Digital-only filing of accounts. Standardised filing formats using iXBRL and electronic tagging. These reforms will affect how small companies prepare and submit annual accounts. Paper submissions will become obsolete, and accounting software will be the default channel. For small companies still using manual spreadsheets or offline bookkeeping, now is the time to transition to compliant software. Not only does this prevent future disruption, but it also strengthens accuracy, audit trails, and readiness for Making Tax Digital for Corporation Tax — expected later this decade. PAYE, VAT, and Payroll-Linked Obligations While not part of “annual accounts” in the narrow sense, PAYE and VAT compliance are integral to a company’s accounting responsibilities. A small company employing staff must: Operate a PAYE scheme to report earnings and deductions through Real Time Information (RTI) submissions. Provide employees with P60s each tax year (by 31 May following the year-end). Submit P11D forms for benefits and expenses where applicable (by 6 July). For VAT-registered small companies (turnover above £90,000 from April 2024), digital record-keeping under Making Tax Digital for VAT is mandatory. Returns must be filed quarterly via MTD-compatible software, linking directly with HMRC’s systems. When I review clients’ annual accounts, VAT and PAYE balances are often the first indicators of whether record-keeping has been properly maintained throughout the year. Discrepancies between VAT returns and turnover figures, for instance, are a classic red flag during HMRC compliance reviews. HMRC Enquiries and Late Filing Risks HMRC selects companies for enquiry either at random or based on “risk profiling.” Late submissions, inconsistent figures, or unexplained year-on-year variations can all trigger scrutiny. Corporation Tax late filing penalties differ from Companies House penalties: 1 day late: £100 3 months late: additional £100 6 months late: HMRC estimates tax due and adds a 10% surcharge 12 months late: another 10% surcharge Persistent lateness can also affect a company’s credit rating and ability to borrow. In practice, even when no tax is due, failing to file on time can create unnecessary administrative stress. I often advise small company directors to set internal reminders for at least three separate deadlines each year: Corporation Tax payment (9 months after year-end) Corporation Tax return filing (12 months after year-end) Companies House accounts filing (9 months after year-end) Best Practice: Creating an Annual Compliance Calendar For most small companies, compliance becomes manageable once structured into a predictable cycle. A practical “compliance calendar” typically includes: Month after Year-End Key Task Responsible Party Month 1 Review bookkeeping and reconcile bank accounts Director / Bookkeeper Month 2–3 Draft annual accounts and discuss with accountant Accountant Month 6–7 Prepare and approve final accounts Director Month 8–9 File accounts with Companies House; pay Corporation Tax Accountant / Director Month 12 File Corporation Tax return (CT600) Accountant Keeping this structure ensures there’s no last-minute rush. Many directors also use this timeline to plan dividends tax-efficiently, as dividend decisions should align with available post-tax profits — which can only be confirmed once draft accounts are prepared. Practical Scenario: The One-Person Consultancy Consider a freelance IT consultant trading through a small limited company. The company’s year-end is 31 March 2025. Here’s how compliance plays out: April–May 2025: The director downloads all bank and expense data into Xero. June–July 2025: Accountant prepares draft accounts showing turnover of £80,000, expenses of £20,000, and profit of £60,000. August 2025: Corporation Tax of £11,400 (19% on £60,000) is estimated and provisionally recorded. December 2025: Final accounts approved and signed. January 2026: Corporation Tax payment made. March 2026: CT600 filed electronically. April 2026: Confirmation Statement filed and next year’s bookkeeping starts fresh. This is the ideal pattern — steady, predictable, and penalty-free. The Professional Perspective: Why Good Compliance Matters Small company directors often view annual accounts as a regulatory burden, but in reality, strong compliance is a strategic advantage. Accurate, timely accounts: Build trust with lenders, clients, and HMRC. Enable timely tax planning (e.g., pension contributions or dividend planning). Reduce the risk of penalties or enquiries. Support smooth sale or investment processes should the owner wish to exit. From experience, I’ve seen that the small companies most prone to HMRC problems are not those with the most complex transactions, but those that delay dealing with their obligations. Routine discipline — backed by clear records and a proactive accountant — is the single best protection against compliance headaches. Preparing for the Future of UK Small Company Reporting Looking ahead, the compliance landscape is tightening. Companies House reform, digital ID verification, and the phasing out of abridged or “filleted” accounts will raise transparency standards. Small companies will soon be required to file a profit and loss account with Companies House — something previously optional for many micro-entities. This means directors should prepare for greater public visibility of their financial results. Adapting early — by maintaining accurate digital records, adopting compliant software, and keeping to deadlines — will position your company comfortably for these evolving expectations. FAQs Q1: Can a small company shorten or extend its financial year? A1: Yes, but only within limits. A company can shorten its financial year as often as it wishes, but it can only extend it once every five years—unless there’s a valid reason accepted by Companies House, such as aligning with a parent company’s year-end. I’ve had clients extend to 18 months purely to simplify tax planning, but remember: it also shifts every related deadline (tax, filing, and accounts). Q2: What happens if a company files its accounts late but has no tax to pay? A2: The penalties still apply. Companies House fines are automatic, regardless of whether there’s profit or tax liability. I’ve seen dormant or loss-making companies fined £750 simply because a director assumed “no tax, no rush.” Always file on time, even at zero profit. Q3: Is a micro-entity treated differently from a small company? A3: It is. Micro-entities—typically with turnover under £632,000, assets under £316,000, and fewer than 10 employees—can file simplified accounts using FRS 105. The trade-off is reduced disclosure but stricter limitations, for instance, no revaluing assets or deferring tax. For very small consultancies, FRS 105 often strikes the right balance between simplicity and compliance. Q4: How do dividends interact with annual accounts? A4: Dividends must be supported by realised post-tax profits shown in the accounts. I’ve seen directors vote dividends without confirming retained earnings, then face HMRC challenges for “illegal dividends.” Before paying out, check the balance sheet or have your accountant run a quick profit test. Q5: If a company changes accountants mid-year, who’s responsible for the accounts? A5: Legally, the director remains responsible. In practice, though, the outgoing accountant typically provides handover working papers, and the new accountant prepares the final set. Always ensure continuity—missing trial balances or PAYE summaries cause chaos at year-end. Q6: Can someone file their own small company accounts without an accountant? A6: They can, but it’s risky. Many directors underestimate the technical requirements of iXBRL tagging, FRS compliance, and CT600 accuracy. I’ve seen clients fined because they accidentally filed abbreviated instead of full accounts. Unless you’re confident with software and HMRC terminology, professional help pays for itself. Q7: What if a company has different accounting and Corporation Tax year-ends? A7: That happens often in the first trading period. HMRC splits the first accounting period into two tax periods, and the company files a separate CT600 for each. For instance, a company incorporated on 10 May 2024 with a year-end of 31 May 2025 will have one short period from May 2024 to 9 May 2025, then one normal period from 10 May to 31 May. It’s technical—but standard. Q8: Can a company change from FRS 102 Section 1A to FRS 105 (micro-entity)? A8: Yes, but it must qualify for micro-entity status both in the current and previous financial year. Transition requires restating prior-year comparatives under FRS 105 rules. I once assisted a catering firm that downsized during COVID; the switch cut its compliance burden significantly, though we had to adjust how fixed assets were reported. Q9: What’s the difference between dormant and non-trading companies? A9: A dormant company has no significant accounting transactions—not even paying bank fees or rent. A non-trading company might not earn income but still has small outgoings, meaning it’s not technically dormant. HMRC sees the distinction clearly: a “non-trading” company must still file Corporation Tax returns if it’s registered for tax. Q10: How does Companies House handle errors in filed accounts? A10: If an error’s discovered, you can file amended accounts—but you must clearly label them as “amended” and include a note explaining the correction. It’s worth acting fast; incorrect filings can affect credit checks or loan applications. I once had a client denied a mortgage due to a misclassified director loan balance. Q11: Can small companies claim accounting software costs as expenses? A11: Absolutely. Cloud accounting tools like Xero or QuickBooks are legitimate business expenses, deductible against Corporation Tax. I always encourage clients to use these systems because they help maintain digital records—soon to be mandatory under Making Tax Digital for Corporation Tax. Q12: Do Scottish or Welsh small companies have different annual account rules? A12: Not for accounts—Companies House applies UK-wide standards. However, tax treatment (like Scottish income tax rates for directors’ personal tax) can differ. So while the company obligations are identical, personal tax planning around dividends and salaries may vary by region. Q13: How are overseas subsidiaries of UK small companies treated in accounts? A13: They must be consolidated if the group as a whole exceeds small-company thresholds. But if the UK parent remains small and the overseas entity is immaterial, it can often prepare separate accounts. I once worked with a Manchester marketing agency owning a small EU branch—disclosure was sufficient without full consolidation. Q14: What happens if the director’s loan account goes overdrawn? A14: If a director owes the company money at year-end, there’s a potential s.455 tax charge—currently 33.75% on the overdrawn balance, repayable once cleared. It’s one of the most common small-company pitfalls I encounter. Always reconcile the loan account before signing off accounts. Q15: Are paper records still acceptable for small companies? A15: Technically yes, but they’re on borrowed time. With Companies House reforms and digital verification rules, the move toward mandatory digital record-keeping is accelerating. I tell clients to treat paper as backup only; cloud storage ensures compliance and quick retrieval during HMRC reviews. Q16: Can a company file early if it’s ready before the year-end? A16: Not before the year-end itself, but immediately after. Filing early is actually smart—it confirms figures before tax deadlines and can support loan or visa applications. Many of my tech start-up clients file within three months of year-end to show investors credible, up-to-date accounts. Q17: How do retained profits affect dividend planning for small companies? A17: Retained profits determine how much you can lawfully pay in dividends. If your accounts show £40,000 retained profit and you draw £50,000, that extra £10,000 counts as a loan or salary—not a dividend. Always review last year’s accounts before declaring new dividends. Q18: What if HMRC disagrees with the figures in filed accounts? A18: They’ll usually open an enquiry—formally within 12 months of filing the return. It’s rarely hostile but can delay tax refunds or create extra admin. Keep clear documentation of all adjustments and disclosures; well-prepared working papers often resolve such issues swiftly. Q19: How should small companies account for pre-trading expenses? A19: Expenses incurred before trading begins (like website setup or registration costs) can be included as pre-trading expenses and deducted once trading starts. For example, a director who spent £1,500 setting up a consultancy before opening day can reclaim that as a business cost in the first accounting period. Q20: What’s the smartest way to stay compliant without stress each year? A20: Build rhythm. Use digital accounting tools, reconcile monthly, and book quarterly check-ins with your accountant. I’ve found small businesses that “chip away” at bookkeeping during the year rarely face last-minute penalties. Annual accounts then become confirmation, not crisis management.
Posted inUncategorized

What Are The Annual Account Obligations For Small Companies?

Posted by Eloise November 26, 2025

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