By
August 30, 2026
How Do I Set Up Bookkeeping for a New UK Limited Company?
To set up bookkeeping for a new UK limited company, open a separate business bank account, choose suitable accounting software, create appropriate income and expense categories, and record every company transaction from the date business activity begins.
Good bookkeeping gives directors a clear view of the company’s finances and provides the information needed to prepare annual accounts, calculate Corporation Tax and file other returns.
The system does not need to be unnecessarily complicated. However, it must produce records that are complete, accurate and capable of explaining the company’s financial position at any time.
Bookkeeping is the process of recording and organising the company’s financial transactions.
This normally includes:
Bookkeeping records form the basis of the company’s annual accounts and tax returns. If the underlying records are incomplete or incorrectly classified, the annual accounts and Corporation Tax calculations may also be wrong.
A limited company must keep adequate accounting records.
The records should be sufficient to:
Directors are legally responsible for ensuring these records are maintained. They can appoint a bookkeeper or accountant to handle the work, but the directors remain responsible for the company’s compliance.
Bookkeeping should begin with the company’s first financial transaction.
This could happen before the company receives its first customer payment. Examples include:
Do not wait until the end of the first financial year to organise the records. Reconstructing several months of transactions from bank statements is time-consuming and can result in missing invoices, unclaimed expenses and inaccurate tax calculations.
Start by recording the company’s:
These dates are not necessarily the same.
A company’s first Companies House accounts may cover slightly more than 12 months, but a Corporation Tax accounting period cannot normally exceed 12 months. As a result, the company may sometimes need two Company Tax Returns for the period covered by its first annual accounts.
Recording the dates at the beginning reduces the risk of overlooking an obligation.
A limited company is legally separate from its directors and shareholders. Its money should be kept separate from their personal funds.
A dedicated business account makes it easier to:
Avoid receiving company income into a director’s personal account. Where a director pays a genuine company expense personally, record it properly as an amount owed by the company to that director.
The same principle applies to payment accounts, online wallets and foreign-currency accounts. Accounts used by the company should be opened or clearly maintained in the company’s name.
Accounting software can make it easier to maintain consistent records and prepare information for annual filings.
When comparing software, consider whether it can:
A simple company may need only basic bookkeeping features. A company trading internationally, holding stock or processing many online transactions may require more advanced integrations.
From 1 April 2026, companies generally need commercial software to submit Company Tax Returns to HMRC because the former joint online filing service has closed. Companies House is also moving to software-only accounts filing from 1 April 2028. Choosing software with suitable filing or accountant-integration capabilities can therefore reduce future disruption.
Bookkeeping software may offer different ways to display income and expenditure, but a limited company’s statutory accounts will normally be prepared using accrual accounting principles.
Under accrual accounting:
Cash-flow reports remain useful, but bank movements alone do not provide a complete picture of the company’s profit.
For example, issuing an invoice on 20 March and receiving payment on 10 April may create income in the period containing the March supply, even though the cash arrives later.
A chart of accounts is the list of categories used to organise the company’s transactions.
Typical income categories include:
Common expense categories include:
Balance-sheet categories may include:
Keep the chart detailed enough to provide useful information, but not so complicated that similar expenses are spread across numerous overlapping categories.
When a company limited by shares is formed, its initial share capital should be recorded in the bookkeeping system.
For example, if the company issues 100 ordinary shares with a nominal value of £1 each, its issued nominal share capital is £100.
If the shareholder pays the £100 into the company’s bank account, the bookkeeping records should show:
If the shares have not yet been paid for, the records should show the unpaid position correctly.
Share capital is not business income and should not be recorded as sales. It is also not automatically the same as the company’s value.
The accounting records should agree with the statement of capital, register of members and share certificates.
New companies are frequently funded by their directors before generating revenue.
Money paid into the company that is not share capital will often be treated as a loan from the director. This should be credited to the director’s loan account.
For example, if a director transfers £2,000 to pay early business costs, the records may show:
The company can generally repay this amount to the director without treating the repayment as salary or a dividend, provided that the original loan and repayment are accurately recorded.
If a director withdraws more than the company owes them, the loan account may become overdrawn. Overdrawn director’s loan accounts can create company-law and tax consequences, so they should be monitored carefully.
A director or shareholder may pay costs before the company is incorporated.
Examples include:
Some qualifying costs may be recognised or reimbursed by the company, but the treatment depends on the nature of the expense, when it was incurred and whether it was genuinely for the company’s business.
The company should retain the original invoice or receipt and record:
Do not automatically treat every cost incurred before incorporation as a company expense. Personal costs and costs relating to a different business should not be transferred into the company’s records.
Every sales invoice should have a unique and sequential invoice number.
The invoice should normally include:
The invoicing system should allow the company to track:
An invoice should not be deleted simply because it contains a mistake. The company should preserve the audit trail and issue a corrected invoice or credit note as appropriate.
Every expense should be supported by appropriate evidence.
This may include:
For each expense, record:
A bank statement shows that money was paid, but it may not establish what was purchased or whether it was wholly for the business. Retain the underlying invoice or receipt whenever possible.
Companies selling online may receive net settlements rather than the full value of their sales.
For example, a payment processor might:
The company should not simply record £950 as sales. Its books should normally show the gross sales, fees, refunds and net payment separately.
The same issue can arise with:
Reconcile each platform’s settlement report to the amount received in the bank. This gives a more accurate view of revenue and costs.
A company that is VAT registered must maintain appropriate VAT records and submit VAT Returns using compatible Making Tax Digital software, unless a specific exemption applies.
The bookkeeping system should record:
VAT collected from customers is not part of the company’s profit. It represents an amount that may be owed to HMRC after deducting eligible input VAT.
The company should not reclaim VAT solely because a payment appears on its bank statement. It normally needs valid evidence and the purchase must satisfy the applicable recovery rules.
If the company employs staff or pays directors through payroll, it may need to register as an employer and operate PAYE.
Payroll records should include:
Payroll liabilities should be recorded separately from ordinary expenses. The amount paid into an employee’s bank account is only the net element of the total payroll cost.
The company must submit the appropriate payroll information to HMRC and keep supporting employment records.
Items expected to provide a benefit over several years may need to be treated as fixed assets rather than ordinary expenses.
Examples can include:
The bookkeeping system should record:
Accounting depreciation and Corporation Tax capital allowances are not the same calculation. An accountant or tax adviser may need to make adjustments when preparing the tax return.
A company that buys or manufactures goods for sale should maintain stock records.
These can include:
Purchasing stock does not necessarily create an immediate expense for the full amount. Unsold stock may remain an asset at the financial year-end.
Regular stock counts help identify losses, errors and differences between physical inventory and software records.
A UK company may invoice customers, pay suppliers or hold balances in currencies such as GBP, EUR, USD or AED.
The records should preserve:
Do not record only the sterling amount arriving in the main bank account if the company earned revenue in another currency.
Each foreign-currency account should normally be reconciled separately. The company may also need to revalue outstanding balances at the financial year-end.
Payments to directors or shareholders should be clearly classified.
A payment might represent:
Do not categorise every payment to a shareholder as a dividend. A dividend requires sufficient distributable profits and appropriate corporate documentation.
The bookkeeping entry should match the legal nature of the payment.
Bookkeeping should be updated regularly rather than once a year.
For many small companies, a weekly routine is appropriate. A business with a large number of transactions may need daily processing.
A useful schedule is:
Bank reconciliation compares the transactions in the bookkeeping system with the bank statement.
The closing balance in the books should agree with the closing balance shown by the bank, after accounting for legitimate timing differences.
Reconciliation can identify:
Every company bank account, payment account and foreign-currency account should be reconciled.
A software connection that imports transactions does not complete the reconciliation automatically. The imported bank entry must still be matched to the correct invoice, bill, transfer or accounting category.
Bookkeeping is not only for tax compliance. It should help directors understand the business.
Useful reports include:
This shows income, expenses and profit or loss over a particular period.
This shows the company’s assets, liabilities and equity at a particular date.
This helps directors understand where cash came from and how it was used.
This shows customers who owe the company money and how long invoices have been outstanding.
This shows amounts the company owes to suppliers.
This estimates the VAT payable to or recoverable from HMRC.
This shows money introduced, withdrawn or owed between the company and each director.
Reports should be reviewed for unusual, negative or unexplained balances rather than simply generated and ignored.
For tax purposes, a company should generally keep records for six years from the end of the financial year to which they relate.
Records may need to be retained longer where:
Company-law minimum periods and tax record-retention rules are not identical. Using the longer applicable period is normally the safer approach.
Records can generally be kept digitally, provided that they remain complete, accurate, readable and accessible.
A company should retain records such as:
Back up electronic records securely. Directors should not rely solely on access to an online banking platform, marketplace or accounting provider because access may later be restricted or closed.
New companies should avoid:
Regular reviews are easier and less expensive than correcting an entire year of inaccurate records.
A company is not normally required to appoint a professional bookkeeper or accountant. The directors may maintain the records themselves if they have the knowledge, software and time to do so correctly.
Professional support may be particularly useful where the company:
A common arrangement is for the company to manage routine bookkeeping and ask an accountant to review the records, prepare the annual accounts and file the Company Tax Return.
Before the company begins regular trading:
Yes. Directors can maintain the bookkeeping themselves, provided that the records are accurate, complete and sufficient to support the company’s accounts and tax returns.
A spreadsheet may be suitable for a very simple, non-VAT-registered company, but it can become difficult to control as transaction volumes increase. VAT-registered businesses must comply with Making Tax Digital requirements, which may require compatible or bridging software and digital links.
The system should be ready before regular transactions begin. Initial funding, share capital and pre-trading expenses may need to be recorded even before the company makes its first sale.
Record all company transactions from incorporation. The company may incur expenses, receive funding or buy assets before its first sale.
A director may occasionally pay a genuine company expense personally, but it should be documented and recorded through the director’s loan account or expense process. Company finances should otherwise remain separate.
Not usually. It may be share capital or a loan from the director, depending on the arrangement. It should not automatically be recorded as sales income.
No. Bookkeeping records the company’s daily transactions. Annual accounts summarise and adjust those records under the applicable accounting framework.
Records can generally be stored digitally if the copies are complete, accurate, readable and accessible. Some original documents may need to be retained for legal, contractual or regulatory reasons.
At least monthly for a low-volume company and more frequently for an active business. High-volume companies may need daily or weekly reconciliation.
Yes. Under accrual accounting, customer invoices and supplier bills may need to be recorded even if they have not yet been paid.
Record gross sales, refunds, marketplace charges, payment fees and the net settlement separately. The amount deposited into the bank is not necessarily the company’s total revenue.
The amount depends on taxable profits, applicable rates, reliefs and associated-company rules. The company should estimate the liability regularly and keep the expected tax amount separate from everyday spending.
To set up bookkeeping for a new UK limited company, open a separate business bank account, choose appropriate accounting software and create clear categories for income, expenses, assets, liabilities, share capital and director transactions.
Record every transaction from incorporation, retain the supporting invoice or receipt and reconcile all bank and payment accounts regularly. Companies dealing with VAT, payroll, stock, online marketplaces or foreign currencies should configure these areas before transactions increase.
The directors remain responsible for ensuring that the records are accurate and sufficient to prepare annual accounts and tax returns, whether the bookkeeping is handled internally or by a professional.
