What is classed as a small business?

Businesses come in all sizes, but did you know that HMRC has specific measurements that determine the size of your business? (Her Majesty’s Revenue and Customs)

This is important because when your business grows to a certain size, there are a few things you need to do differently when it comes to accounting.

Let’s look at some important factors to think about when it comes to the size of your business. Specifically, we’ll be looking at:

●        What is classed as a small business by HMRC

●        Why does business size matter?

●        How to submit financial records

●        How to keep track of your small business’s finances

First, let’s look at a working definition of ‘small’ because there are actually two kinds of small businesses: small businesses and micro-entities.

Sizes are determined by 3 factors:

•  Number of employees.
• Turnover – the total value of the money that your business has received over a given period.
• Balance sheet – this is a report that shows whether your total assets have the same value as your liabilities plus your owner’s equity. Equity is calculated by the value of your assets, minus any liabilities.

As the name suggests, micro-entities are very small businesses. Your company is classified as a micro-entity if it meets any 2 of these criteria:

●        You have an annual turnover of £632,000 or less.

●        You have recorded £316,000 or less on your balance sheet.

●        You have 10 employees or fewer.

Your business is classified as ‘small’ if it meets any 2 of the following criteria:

●        You have an annual turnover of £10.2 million or less.

●        You have recorded £5.1 million or less on your balance sheet.

●        You have 50 employees or fewer.

Your business is classified as medium-sized if it meets any 2 of the following criteria:

●        You have an annual turnover of £36 million or less.

●        You have recorded £18 million or less on your balance sheet.

●        You have 250 employees or fewer.

At the end of each financial year, businesses have to prepare financial records, often called ‘statutory accounts’. The size of your business determines what you need to include in these accounts.

Generally speaking, statutory accounts should include:

●        A balance sheet – with the name and signature of a director.

●        A profit and loss statement – your company’s sales, running costs, and your profit or loss over the financial year.

●  Notes about the accounts – any extra information that you think is relevant.

●  A director’s report

●        An auditor’s report

The last two are highlighted because they are dependent on the size of your company.

Once prepared, copies of your financial records should be sent to:

●        Shareholders – if you have them.

●  People who attend the company’s general meetings.

●  Companies House – The UK’s company registrar.

●        HM Revenue and Customs (HMRC) as part of your Company Tax Return.

If your business is classed as a micro-entity, or a small business, then you don’t have to:

●        Include an auditor’s report – if you claim an exemption.

●        Send a directors’ report, or profit and loss account, to Companies House – if these aren’t included, it should be noted on the balance sheet. You should still send these accounts to everyone else on the list we provided above.

The main takeaway here is that you need to be aware of the size of your business, as defined by HMRC, so you know what to include in your annual financial records.

Once you have all the right information:

●        A balance sheet – with the name and signature of a director.

●        A profit and loss statement – your company’s sales, running costs, and your profit or loss over the financial year.

●  Notes about the accounts – any extra information that you think is relevant.

●  A director’s report

●        An auditor’s report

You simply need to submit your statutory accounts to the right places.

The HMRC website has a lot of specific guidance about submitting financial accounts. 

Records can be submitted online or in paper form (although this may take considerably longer).

Submitting financial records for your business might sound complicated, but the bulk of this process just involves being organised. Some general good practices are to:

●        Keep detailed accounts of expenses and profits throughout the year.

●        Keep everything well-organised, so you know where to find it.

The Countingup business current account and accounting app makes this simple by automating the time consuming aspects of record keeping, and encouraging healthy habits when it comes to your finances. 

Save time on accounting with a simple app

To save time and money on accounting, thousands of UK business owners use the Countingup app to automate the manual parts of financial bookkeeping. 

Countingup helps you to digitally record expenses on the go, create invoices in seconds, gives live insights into your profit and loss, and more. With your data kept in an organised way, you’ll be able to get an instant view into the size of your business, and whether that is about to change, based on the criteria we mentioned before. Find out more here.