Startup Accounting & Bookkeeping Services UK: The Complete Operating Guide

Evidence Rules for Expenses

HMRC expects "reasonable evidence" that expenses are:

• Wholly and exclusively for business purposes
• Accurately recorded with date, amount, supplier, and business reason
• Supported by documentation (receipt, invoice, or credible alternative if lost)

Minimum acceptable evidence:

• Supplier name and address
• Transaction date
• Description of goods or services
• Amount including VAT (if applicable)
• Payment method confirmation

Digital records: HMRC accepts digital records. Use cloud storage with version control and regular backups. Photo receipts immediately; thermal paper fades within months.

Operating Cadence: Weekly, Monthly, Quarterly Routines

Weekly (20–30 minutes)

Target: Close your books within 5–7 working days. Faster closes improve decision-making and signal operational maturity to investors.

Quarterly (1–2 days)

Popular UK startup options: Xero, QuickBooks Online, FreeAgent (self-employed and micro-companies), Sage Accounting. Evaluate based on your scorecard.

When to Hire a Bookkeeper vs Accountant vs CFO

Bookkeeper: Day-to-day transaction recording, bank reconciliation, invoicing, expense management. Typically engaged monthly (few hours) or ongoing (fractional).

Accountant: Year-end accounts, Corporation Tax return, tax planning, statutory compliance (Companies House filings). Typically engaged annually or quarterly.

Fractional CFO / Finance Lead: Strategic finance (fundraising, budgeting, forecasting, KPIs, board reporting, investor relations, financial modeling). Typically 1–3 days/month at early stage, scaling with complexity.

Solo founder rule of thumb: Do your own bookkeeping until it takes more than 4 hours/month or you make repeated errors. Outsource before it becomes painful.

Common Startup Accounting Mistakes and How to Avoid Them

Mistake 1: Mixing Personal and Business Finances

Consequence: HMRC disputes over expense claims; difficult bank reconciliation; poor cash visibility; risk of piercing the corporate veil.

Prevention:

• Open a dedicated business bank account on day one
• Use a business credit card for all company spending
• Reimburse yourself formally for any personal card use (with receipts and expense claim)
• Transfer a regular "salary" or dividend to yourself rather than ad-hoc withdrawals

Mistake 2: Ignoring VAT Registration Threshold

Consequence: Late registration penalty (up to 15% of VAT due); loss of input VAT reclaim; retrospective VAT liability.

Prevention:

• Monitor rolling 12-month taxable turnover monthly
• Register within 30 days of the month-end when you exceed £90,000
• Register immediately if you expect to exceed £90,000 in the next 30 days alone
• Consider voluntary registration if your customers are VAT-registered (you can reclaim input VAT)

Context: With 801,864 incorporations in the UK from April 2024 to March 2025, many startups cross the £90,000 threshold faster than expected. Build VAT monitoring into your monthly close.

Mistake 3: Poor Expense Categorization

Consequence: Incorrect tax deductions; inability to analyze spending patterns; weak budget variance analysis; investor confusion.

Prevention:

• Create a chart of accounts with clear category definitions (written guide, 1–2 sentences per category)
• Train anyone with spending authority on categories
• Review miscellaneous or "other" categories monthly; if they grow above 5% of expenses, split into specific categories
• Use consistent vendor names (avoid "Amazon" in 10 different ways)

Mistake 4: Forgetting to Record Accruals and Prepayments

Consequence: P&L doesn't reflect true monthly performance; cash flow timing masks underlying profitability; impossible to compare month-on-month accurately.

Prevention:

• Identify recurring expenses that don't align with month boundaries (annual SaaS subscriptions, quarterly rent, insurance)
• At month-end, record an accrual for expenses incurred but not yet billed (e.g., consulting hours worked, utility bills in arrears)
• Record a prepayment for advance payments (spread the cost over the period it relates to)
• Document your accrual and prepayment policy; apply consistently

Example: You pay £1,200 annual SaaS subscription in January. Record £100/month expense, not £1,200 in January. Your January P&L should show £100; your balance sheet shows £1,100 prepayment asset that reduces £100 each month.

Mistake 5: Late or Missed Statutory Filings

Consequence: Automatic penalties; director disqualification risk; damaged credit rating; loss of investor confidence.

Prevention:

• Diarize all deadlines 4–6 weeks in advance:
  • Annual accounts: 9 months after year-end (21 months for first accounts)
  • Corporation Tax return: 12 months after accounting period ends
  • Corporation Tax payment: 9 months and 1 day after accounting period ends
  • Confirmation statement: At least annually, within 14 days after review period
  • Self Assessment (if applicable): 31 January following tax year
  • VAT returns (if registered): Quarterly, 1 month and 7 days after quarter-end
• Use accounting software or calendar reminders with escalating alerts
• Engage an accountant if you're not confident managing deadlines yourself

UK context: Late filing penalties for private limited companies start at £150 and reach £1,500, doubling for repeat offenders. With 726,735 dissolutions from April 2024 to March 2025, many failures stem from compliance breakdowns.

Mistake 6: No Monthly Close Discipline

Consequence: No visibility into financial health; unable to forecast accurately; reactive rather than proactive decisions; weak investor updates.

Prevention:

• Implement the monthly close SOP above
• Set a target: close within 5–7 working days
• Track close completion date month-on-month; aim for consistency
• If you miss the target, document why and fix the bottleneck next month

Mistake 7: Failing to Track Runway and Burn Rate

Consequence: Run out of cash unexpectedly; miss fundraising window; forced into unfavorable terms or shutdown.

Prevention:

• Calculate runway weekly: (Cash in bank) ÷ (Average monthly burn rate)
• Define burn rate clearly: cash out minus cash in over the past 30, 60, or 90 days
• Forecast burn rate changes (new hires, marketing campaigns, product launches)
• Set a "fundraising trigger" (e.g., 9 months runway remaining) and plan accordingly

Ops/Finance lead variation: Build a 13-week rolling cash flow forecast. Update weekly. Scenario-plan for delayed customer payments, faster hiring, or unexpected expenses.

Mistake 8: Inadequate Financial Controls

Consequence: Fraud risk; unauthorized spending; duplicate payments; lack of accountability.

Prevention:

• Document expense approval limits (e.g., < £500 team lead approval, £500–5k founder approval, > £5k board approval)
• Require two signatories or approval steps for payments above a threshold
• Separate duties: person recording expenses ≠ person approving payments
• Conduct spot checks on expense claims and vendor invoices
• Review all bank transactions monthly; investigate anything unusual

UK Compliance Calendar: Key Deadlines

Annual and Recurring Deadlines