The accountant's work in a startup
An accountant's work for a startup follows the company's stages. In the set-up year it is mostly registrations and decisions that are hard to change later, such as how the shares are held and when to register for VAT. In the first year of trading it is the books, the returns and the first year-end filings. Before and after an investment round it is the records investors check, the tax schemes their relief depends on and the filings that follow a share issue. As the company grows it becomes monthly reporting, budgets and eventually a finance team.
The deadlines that run through all of this come from company law and tax law, and missing one leads to penalties that show up later in an investor's due diligence. Our guide to first-year deadlines sets them out as a dated calendar.
What this guide covers
- Setting up the company, its shares and its tax registrations
- Bookkeeping, VAT, payroll and the first year-end filings
- Preparing for a raise and the filings after it
- Management accounts, a finance team and a finance director
Setting up the company
The choices made when the company is formed, especially about its shares, decide how easily it can take investment later.
Incorporation and the share structure
Many companies are formed with a single £1 share. Before a second founder joins or an investor arrives, that share is usually subdivided and new shares are allotted so that each founder holds the agreed proportion. Where founders' shares vest over time, each founder and the company sign a joint election under section 431 of the Income Tax (Earnings and Pensions) Act 2003 within 14 days of the shares being acquired. The election means the founder is taxed on the shares' value when they are acquired, which for a new company is usually very little, and later growth in value falls under capital gains tax. HMRC sets out the time limit and who must sign in its employment-related securities manual. Our page on share structure and cap tables explains the choices.
The incorporation also records the people with significant control, who are broadly anyone holding more than 25% of the shares or voting rights or able to appoint or remove a majority of the directors. Each director gives a Companies House personal code, which they get by verifying their identity. Our guide to Companies House duties covers those rules.
Tax registrations
The accountant registers the company for each tax when it applies:
- Corporation tax, within three months of the company starting to do business, which includes buying, selling, advertising, renting a property and employing someone
- VAT, when taxable turnover for the last 12 months goes over £90,000, or earlier by choice so the company can reclaim VAT on its costs
- PAYE, before the first payday, including where the only person paid is a director
Software and records
We set up Xero as a Gold Partner, connect the bank feed and set up Buzz OS, our system for your deadlines, documents, tax estimate and VAT approvals. A founder who spent money before the company was formed or before it started trading can have much of it treated as a company cost, and getting those costs into the books at the start means they are claimed. Our post on pre-trading expenses covers the rules.
The first year of trading
Once the company is selling, the work settles into a routine through the year with a cluster of filings after the first year end.
Bookkeeping and VAT
The books are kept current in Xero through the year, with bank transactions reconciled, receipts captured and sales invoices matched to payments. Current books are what make the tax estimate and the year-end accounts accurate. Once the company is registered for VAT, a return is filed for each VAT period under Making Tax Digital, normally every three months, due with the payment one calendar month and seven days after the period ends. Our guide to bookkeeping in Xero covers the routine.
Payroll and pensions
When the company pays salaries, each payday needs a full payment submission to HMRC on or before the day staff are paid, and the tax and National Insurance deducted are paid to HMRC by the 22nd of the next tax month. Automatic enrolment duties start on the day the first member of staff starts work. Staff aged from 22 to State Pension age who earn more than £10,000 a year are put into a workplace pension, staff are written to within six weeks, and the employer files a declaration of compliance with The Pensions Regulator within five months. Our post on your first hire and payroll covers the full list.
The first year-end filings
A company's first financial year ends on the last day of the month in which the first anniversary of incorporation falls, so the first accounts usually cover a little more than 12 months. After the year end, the accountant prepares:
- the statutory accounts filed at Companies House
- the corporation tax computation and CT600 return filed with HMRC, with the tax due nine months and one day after the end of the accounting period
- the confirmation statement, at least once every 12 months
- the directors' Self Assessment returns, where salary and dividends need reporting
Our guides to your first company year end and corporation tax for startups cover the detail. Where the company has done work that may qualify for R&D tax relief, the claim is prepared with the corporation tax return, and our R&D tax relief page explains what qualifies.
Preparing for an investment round
Investors' advisers send a list of requests during due diligence, and most of it is ordinary accounting kept up to date. Our investor readiness work covers:
- books reconciled to a recent month end, with the monthly history behind them
- filed accounts and tax returns, with VAT and PAYE up to date
- a monthly forecast for at least the next year with each assumption written down, and a cautious case alongside the main one
- a cap table and share history that agree with the register of members and the filings at Companies House
- SEIS or EIS advance assurance from HMRC before the company pitches to individual investors who want the tax relief
- the financial documents gathered in one folder, named so the investor's advisers can find them
The order matters for SEIS and EIS. The share structure is settled first, advance assurance is applied for once the investors and the planned issue are known, and the shares are issued in the way the scheme rules require. Our SEIS and EIS page and our guide to raising your first investment round cover each step.
After the money arrives
A completed round creates its own filings and a new reporting duty to shareholders.
Filings after the share issue
- Return of allotment. The company files a return of allotment with a statement of capital at Companies House within one month of allotting the shares, under section 555 of the Companies Act 2006.
- People with significant control. A founder whose holding falls to 25% or below may stop being a person with significant control, and an investor who ends up above 25% becomes one. Changes are reported to Companies House within 14 days of the company confirming them.
- SEIS or EIS compliance statement. Once the company has carried on its qualifying trade for at least four months, or has spent at least 70% of the money raised, it can send HMRC the SEIS1 or EIS1 compliance statement. When HMRC accepts it, the company issues each investor an SEIS3 or EIS3 certificate, which they need to claim their relief.
Investor reporting and the board pack
Many shareholders' agreements give investors information rights, which set out what the company must send them and by when, often including monthly or quarterly management accounts and an annual budget. A monthly update to shareholders usually covers cash at the month end, net burn, runway, the main growth figure, headcount and the problems being dealt with. Our guide to management accounts and startup metrics explains how each number is calculated, and our post on the monthly investor update covers the format.
A board with an investor director usually meets monthly or quarterly and expects a board pack before each meeting: the management accounts against the budget, the cash forecast, the key numbers and a short commentary on the largest differences.
Share options for the team
After a round, many startups grant share options to staff under the Enterprise Management Incentive scheme. Each grant must be notified to HMRC by 6 July after the end of the tax year in which it was made, and the scheme files an annual return by the same date each year. Our EMI share options page sets out how a scheme is set up.
Scaling the finance function
As the company grows, the founders need more regular figures and eventually want the day-to-day finance work taken off them. We provide this in three steps.
Business Pulse
Business Pulse sits on top of your accounts and adds an annual budget, a 12-month cash flow forecast, management accounts and a regular review meeting, all kept in Buzz OS. The management accounts include the profit and loss account, balance sheet and cash, actual figures against the budget with written commentary, the key numbers for your business, and lists of who owes the company money and whom it owes. The quarterly version has a 90-minute review meeting each quarter, and the monthly version has a 60-minute meeting every month with priority support. You or your bookkeeper keep doing the day-to-day work.
A Buzz finance team
A Buzz finance team does the day-to-day finance work. A Finance Manager keeps the books in Xero every week and closes each month within five working days, runs payroll and employee expenses, files VAT returns and keeps the records ready for a lender or investor. A Financial Controller does all of that and adds a monthly board pack for investors, lenders or your board, customer invoicing, supplier payments and cash monitoring.
A part-time finance director
The part-time finance director is Peter Allen, Buzz's co-founder and Financial Director. The service adds an annual plan, a 12-month forecast, a KPI dashboard and a quarterly board meeting, and includes the finance team's work.
What each stage costs
Accounting and tax for a limited company starts at £49 a month + VAT, set by turnover, with payroll charged on top. Business Pulse is from £375 a month + VAT, a Finance Manager from £750, a Financial Controller from £1,500 and the part-time finance director from £2,000, each a month + VAT. Specialist work such as SEIS and EIS, R&D claims and EMI schemes is priced per job. Our guide to what a startup accountant costs sets out every fee by stage, and the instant quote gives your monthly figure.
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