Bookkeeping for startups and new limited companies.

Why the first year needs extra care

In a new company, almost every transaction is a first. The first sale, the first supplier, the first time a director pays for something on a personal card. Each one sets up an account, a supplier record or a habit that later months will follow.

If these early choices are made in a hurry, the mistakes repeat. Personal and company spending gets mixed, costs land in the wrong place and nobody is sure what the company owes its director. Sorting that out at year end takes far longer than getting it right as it happens. If you are still deciding how to set up, our guide on how to set up a limited company covers the steps.

Setting up the books from day one

A limited company is a separate legal person, so its money needs its own records. GOV.UK says a company must keep records of all money received and spent, assets it owns, debts it owes or is owed, stock at the year end and goods bought and sold. It must also keep supporting records such as receipts, invoices and bank statements. These are the setup tasks we work through with you:

• Software. We work in the software you pick, whether that is Xero, QuickBooks, Sage, FreeAgent or another package. The subscription stays in your name.
• Chart of accounts. A list of income, cost, asset and liability accounts that suits what the company actually does, kept short enough to be useful. See our guide to a chart of accounts for small business.
• Bank feeds. The company bank account connected to your software, so every payment can be reconciled.
• Share capital. The money paid for shares, recorded so the opening balance sheet is right.
• Year end and accounting period. The dates in your software matched to the company's financial year, so reports line up with what you file.

Costs from before the company started trading

Most founders spend money before the first sale. Software, a website, legal fees, travel to meet suppliers. Often that money comes from a personal account because the company bank account was not open yet.

HMRC's Business Income Manual explains that, for companies, section 61 of the Corporation Tax Act 2009 gives relief for some spending incurred within seven years before the trade starts. The spending must be the kind that would have been allowed if it had been incurred after trading began, and it must still meet the "wholly and exclusively" test. There are limits. Capital spending does not qualify under this rule, although capital allowances have their own rule that treats pre-trading capital spending as incurred on the day trading starts. Advance purchases of trading stock are also left out, because they are deducted once trading begins.

Our part is the records. We list each pre-trading cost with its date, supplier and receipt, mark which ones look capital, and record who paid. Your accountant then decides the tax treatment at year end with the evidence in front of them.

VAT on purchases before registration

If the company later registers for VAT, some VAT paid before registration can be reclaimed. HMRC's VAT guide (Notice 700) sets the limits. Goods must have been supplied not more than 4 years before registration and still be held by the business. Services must have been supplied not more than 6 months before registration. Both need records, so we keep invoices for early purchases filed and easy to find.

The director's loan account

GOV.UK describes a director's loan as money you, or other close family members, get from your company that is not a salary, a dividend, an expense repayment or money you have previously paid into or lent to the company. A director's loan account records any money you borrow from the company or pay into it. The balance owed by you or to you appears on the balance sheet in the annual accounts.

In a new company this account is busy. Founders pay costs personally, take money out before a salary is set up and put money in to cover a quiet month. We post each movement to the director's loan account as it happens, so the balance is always known. Our guide to the director's loan account goes into more detail.

When the account is overdrawn

GOV.UK sets out what happens if you owe the company money. If an overdrawn loan is not repaid within 9 months of the company's year end, the company pays Corporation Tax at 33.75% of the outstanding amount, or 32.5% if the loan was made before 6 April 2022. Interest is charged on that tax until it is paid or the loan is repaid. The company can reclaim the tax once the loan is repaid, written off or released, but not the interest.

If you owe the company more than £10,000 at any time in the year, the company must treat the loan as a benefit in kind and deduct Class 1 National Insurance. A balance you can see every day is far easier to manage than one you discover at year end.

When you lend the company money

If you lend money to the company, GOV.UK says the company does not pay Corporation Tax on the money it borrows. If you charge interest, the company pays you the interest less Income Tax at the basic rate of 20% and reports it to HMRC each quarter on form CT61. We record the loan and any interest so the paperwork matches the bank.

First deadlines in general terms

A new company has dates to meet before it has a full year of figures. These are the ones GOV.UK sets out:

• Corporation Tax. Add Corporation Tax to your business tax account when the company starts to do business. GOV.UK says this includes buying, selling, advertising, renting a property and employing someone.
• First accounts. Due at Companies House 21 months after the date the company was registered. After that, accounts are due 9 months after the financial year ends.
• Corporation Tax payment. Due 9 months and 1 day after the end of the accounting period.
• Company Tax Return. Due 12 months after the accounting period ends.

The first accounting period can catch people out. GOV.UK says an accounting period for Corporation Tax cannot be longer than 12 months. If the first accounts cover more than 12 months, GOV.UK says the company may have to file 2 tax returns to cover them, each with its own deadline. For the financial year starting 1 April 2026, the small profits rate is 19% for profits of £50,000 or less and the main rate is 25% above £250,000, with Marginal Relief in between. See our guide on your company's accounting period.

VAT is separate. A business must register once its taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days. Daily books show turnover building month by month, so the threshold does not arrive as a surprise.

Keeping records

GOV.UK says company records must be kept for 6 years from the end of the last financial year they relate to, and HMRC can fine a company £3,000 for not keeping accounting records. We keep receipts matched to transactions in your software, so the evidence sits next to the figure it supports.

What is included, and what is quoted separately

Every package covers the same daily work: bookkeeping every UK working day in your existing software, bank reconciliation and receipt matching, finance inbox monitoring, missing invoices and receipts followed up, and a monthly financial summary in plain English. For a startup, that summary shows what is coming in, what is going out and where the director's loan account stands.

Some work sits outside the monthly packages. Catch-up work, tax returns, payroll, CIS returns, VAT return submission and statutory filings are quoted separately. If the company has already been running for a while without proper books, start with catch-up bookkeeping. Once you are established, our page on bookkeeping for limited companies covers the ongoing work.