Terminology and Basics
Some times the terms “Business Accounts” and “Self Assessment” are used interchangeably, which causes confusion, but there is a difference.
- Self Assessment – the annual tax return to HMRC
- Business Accounts (sometimes also called “Financial Statements” or “Year end accounts”) – a summary of your business income and expenses, normally a Profit and Loss Account, maybe a Balance Sheet as well
There is an overlap in that they are both prepared from your bookkeeping, and contain the same information but the audience is different. Self Assessment is meant for HMRC, whereas Business Accounts are for the owners of the business, and banks, lenders, advisors.
- The Profit and Loss Account starts with your turnover, deducts expenses and finishes with profit
- The Balance Sheet shows assets, liabilities and cumulative profits
Sole Traders and Partnerships
Arguably Business Accounts aren’t necessary for a very small business as the information can go direct from your bookkeeping to Self Assessment, however if you use an accountant for your Self Assessment they are likely to produce Business Accounts for you without additional charge as good practice
Accounts aren’t normally submitted to HMRC, as the information is included directly on the Self Assessment, however in some circumstances it can be advisable to send accounts to HMRC – an accountant can advise you further on this.
Historically lenders, eg mortgage company, always wanted to see Business Accounts, but increasingly they will work with a copy of the Self Assessment (SA302 Tax Calculation) – it is the same information.
Companies and LLPs
Companies and LLPs are required to prepare annual accounts by law, and file a summarised version on the public record at Companies House – currently just a Balance Sheet so sensitive information about turnover and profit isn’t made public, however reforms in progress during 2023 onward mean that at a future stage a simple profit and loss account will be required as well – this creates a tension for some company owners as turnover and profit will be in the public domain.
Companies also have to file their accounts with HMRC in a special electronic format called iXbrl alongside their CT600 Corporation Tax return.
