The Profit and Loss account and Balance Sheet

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Introduction 

When you run your own company, the contractor Profit and Loss account (P&L) and Balance Sheet are two of the main statements in a set of financial accounts. Indeed, the company accounts Balance Sheet and P&L account are financial reports for your UK contracting business. The Profit & Loss account shows a company’s trading results, while the contractor Balance Sheet summarises all assets and liabilities and the overall value of your contracting business. Moreover, a business may refer to these official reports as financial statements or UK company financials. This guide will look at limited company accounts explained for UK contractors. As part of this, we’ll investigate the P&L account sheet and Balance sheet. Furthermore, we’ll research how to read a Balance Sheet (UK) and how the P&L works.

This guide will explain how both key documents work and what they show. We’ll research the profit and loss vs balance sheet of a company in detail and study the purpose of a company’s P&L account. Moreover, we’ll focus on understanding a Balance Sheet. In addition, we’ll show a contractor’s Profit and Loss and Balance Sheet example and look at how this works. Furthermore, we’ll look at a simple contractor Profit and Loss account template for a UK contractor later and the difference between the P&L and Balance Sheet.

Initial thoughts 

First thoughts 

In the UK, all small and large companies file formal accounts with the authorities for each accounting period. Furthermore, they usually file accounts with the UK authorities every twelve months. When you’re a UK company owner, your business has a company `year-end’. This is the date in the calendar year the accounts are `made up to.’ Therefore, if your company year-end is 30 June 2025, this is the date to which you include transactions in the accounts made up to this date. When we consider the Balance Sheets and P&L for any UK business, they contain key information on how well the company is doing.

Company Profit and Loss Account and Balance Sheet & what are annual filing requirements?

When you have your own UK contracting company, there are two UK authorities with which you must file your contractor’s accounts. Moreover, these government organisations are responsible for collecting such data and company tax. To clarify, limited company contractors must do this on an annual basis. Therefore, the two UK authorities are:

  • Companies House. Indeed, this government body is responsible for official company filings in terms of company official details. Moreover, UK companies file annual accounts and Confirmation Statements with Companies House.
  • HM Revenue & Customs (HMRC). This government body is responsible for collecting company tax. What’s more, UK companies file company accounts and a company tax return with HMRC on an annual basis.

When you’re a contractor in the UK, your accountant will take care of you and your company. What’s more, when it comes to accounts, including the P&L, contractors will usually rely on their accountants to handle this. Therefore, in most cases, the accountant will prepare your contractor Profit and Loss account and Balance Sheet, business accounts, and various tax returns. Furthermore, they’ll file the necessary documents with the UK authorities.

Companies House Abbreviated accounts 

Small companies file an abbreviated version of their full accounts with Companies House annually. These are your Companies House financial reports, which are displayed online as part of the public record for your business. The abbreviated accounts are a shorter version of the full accounts, with fewer pages and fewer notes to the accounts. Some business owners will ask if you have to file profit and loss to Companies House. The response to this is when a small company prepares accounts for its members; it has the option not to file the profit and loss sheet or directors’ report with Companies House.

Therefore, a company’s abbreviated accounts must show the relevant data to comply with current Companies House reporting requirements. Moreover, a contractor company’s abbreviated accounts don’t include the profit and loss statement but do contain the Balance Sheet. In addition, the full business accounts and company Tax Return (CT600) require filing with HMRC.

There are two key pages in a set of company annual accounts. First, there’s the P&L. Next, there’s the UK Balance Sheet of a company, and we’ll now look at these pages. The Profit & Loss Account and Balance Sheet provide key information regarding your business’ finances. What’s more, the Profit and Loss & Balance Sheet contains key data that show how well your business is doing in terms of profit and liquidity. On this contractor website, we have a separate guide showing all the company/personal tax filing requirements when you run a business. This is a valuable read; you can use it to track important dates. To summarise, when we look at the abbreviated accounts which we file with Companies House, they show less information than the full version. 

The Profit and Loss Account and Balance Sheet -the two main pages in company accounts 

A company’s Profit and Loss and Balance Sheet are the two main pages of financial accounts. Indeed, the information in the business Profit & Loss statement and contractor Balance Sheet is key for the company in question. This is because the Profit & Loss & Balance Sheet show the company’s profitability as well as the health of the business. In short, the P&L and Balance Sheet are important for a UK limited company in any industry. Therefore, we’ll summarise an example P&L and Balance Sheet later in this guide. 

What is a Profit and Loss account for a UK contractor company 

The P&L a/c explained

Let’s look at a P&L account and how this works for a UK limited company. The Profit and Loss statement for an independent contractor in a UK company’s annual accounts will show the business’ trading results. In addition, when we consider P&L accounting, the official report covers the results for a length of time, usually a year. Furthermore, Profit and Loss sheets show how well or not the business has done.

The contractor P&L sheet is the company’s contractor income statement. In effect, this shows the company’s total revenues and expenses.

Now, consider how to do a P&L for a UK business. For example, business revenues will include all income received by the company, be it from sales or turnover and other income. On the other hand, business operating expenses include administrative, selling, and general expenses related to running the business. To sum up, the figures for revenue and costs will cover a financial period, usually a year.

What does the P&L for a company show?

The business Profit and Loss Statement (UK) will display the company’s activities regarding trading and other income and expenditure during the year. Indeed, a Profit and Loss statement for contractors will show their contracting income. In addition, it’ll show any direct costs and administration costs for the business. What’s more, in a UK contractor company, these’ll include travelling costs, office expenses, computer costs, accountancy fees and salaries, to name a few. Furthermore, a contractor’s profit and loss statement will show the Corporation tax charge and the profit after tax. In addition, the profit after tax shown in the P&L is the amount of profit for the year that’s available to pay as dividends, as shown in the profit and loss example below.

To explain further, we’ll now set out a business Profit and Loss template (UK) for a financial year. This example of a contractor Profit and Loss account for a contractor shows the main figures in a standard P&L statement.

Company P&L account (UK) example
Turnover 50,000
Cost of sales or cost of goods sold -15,000
Gross profit 35,000
Administrative expenses -10,000
Other income 500
Operating profit and profit before tax * 25,500
Corporation Tax -4,845
Profit after tax (or net income) 20,655 These are the company’s funds after taxes. The company can pay dividends from them in the future.

A summary of above

* Within the Profit and Loss statement for small businesses, operating profit is the total profits from a company’s business operations. Moreover, this P & L template excludes interest and tax deductions.

This business P&L example shows what information the basic statement contains. Indeed, that’ll generally be the same for all UK companies, especially smaller ones such as a UK contractor. This template shows the main items we include, and in this P&L example, we show how we arrive at the profit after-tax figure at the end of this. If you would like to see more contractor Profit and Loss account examples, you can look online for these.

Balance Sheet explained (UK) 

Limited company contractor Balance Sheet

Let’s look at the Companies House balance sheet explained for a UK limited company. A Balance Sheet displays the business’s financial health and shows the company’s assets, liabilities, and equity. This is also known as the Statement of Financial Position of a business, and it shows the company’s overall financial position at a given date. Therefore, let’s research how to read a Balance Sheet (UK).

The Balance Sheet is a snapshot of the company’s total assets and liabilities as of the date to which the accounts are made up. Most importantly, when we research the construction of a Balance Sheet, it’ll include the balances owed to and by the business at the date of the statement. Therefore, it shows your company’s financial position as of the Balance Sheet date. In conclusion, the financial position shows the business’s health in monetary terms.

UK Balance Sheets show the shareholders’ equity and any retained profits (not yet distributed as dividends) available as retained profit for the following year. To reiterate, it’s important to be aware all the values displayed are those at the business year-end date. As mentioned, the Statement of Financial Position provides a snapshot at the accounts’ date. Therefore, it shows where the company stands with its finances as of the statement’s date.

The Statement of Financial Position shows how the business finances its assets through shareholder’s equity or as debt under liabilities. In addition, it shows how efficiently the company is using its resources.

In addition to explaining how the P&L functions, when we look at how to read a Balance Sheet, the main components are:

  • Fixed assets.
  • Current assets.
  • Current liabilities.
  • Shareholders’ funds.

What does a UK company Balance Sheet show? 

The Balance Sheet for small businesses shows the amounts due to and from the company at the statement date. In addition, it shows any assets and how the company is financed (capital and reserves). In this guide, we’ll look at a Balance Sheet example (UK) below and see how this works. Moreover, a contractor’s Balance Sheet will show the amounts due to and from their company at the Balance Sheet date, as well as assets, bank account and capital and reserves (shareholders’ funds).

To explain further, here’s a Balance Sheet template (UK) for a financial year:

ABC Consulting Limited 30 June 2025
Fixed assets
Tangible assets 2500
Current assets
Debtors 6000
Cash at bank 7500
13500
Creditors
Amounts falling due within one year 4500
Net current assets 9000
Total assets less the current liabilities 11500
Capital and reserves
Called up share capital 100
Retained earnings (retained P & L account) 11400
Total shareholders’ funds 11500

This Balance Sheet template for small businesses shows how we construct a UK Balance Sheet. Moreover, the small business Balance Sheet template shows the figures we include in this. In addition, this UK Balance Sheet example shows how we arrive at the `Total assets less the current liabilities’, which, in turn, equals the overall shareholders’ funds.

Contractor Balance Sheet

As a UK limited company contractor, the company balances above could represent:

  • The tangible assets could be your company equipment. Indeed, this could include computers or office equipment.
  • Debtors amounts falling due (within one year) will usually include invoices owed to the company. Therefore, this could be for your contract work for the last month in your company accounts, which the company didn’t receive by the end of the year.
  • Cash at bank is the overall balance in your contractor bank accounts. Therefore, this will include the current account balance and any savings or deposit account balances.
  • The creditors amounts falling within one year figure represents amounts owed by your company. Indeed, creditors amounts falling due under one year include Corporation Tax, VAT, PAYE/NIC and any creditor balance on your director’s loan account.
  • Called up share capital represents the shares issued by the company. As a UK contractor company, this includes your shares and the shares held by any other shareholder.
  • The retained earnings are the company’s cumulative contractor profit and loss account on the Balance Sheet. Indeed, this Profit and Loss in Balance Sheet figure is the company funds which haven’t been distributed yet. In the case of a UK contractor, profit in the Balance Sheet is the amount available to pay to your company shareholders in the future. Depending on previous results, the cumulative P&L balance could show a loss in the company’s Balance Sheet. In this case, the P&L amount shown in the Balance Sheet will show the company is in negative equity.

A cash flow statement

In addition to the P&L and Balance Sheet, companies can include a cash flow statement in their accounts after the Statement of Financial Position but before the notes to the accounts. This statement details the exact amount of a company’s cash inflows and outflows over the financial period.

Additionally, many smaller companies include an income statement in their accounts. To clarify, this is the most common type of financial cash flow type statement. In short, it shows a company’s revenues and total expenses, including noncash accounting, such as depreciation. 

What are the main components in the Balance Sheet (UK)? 

Fixed Assets

Fixed assets generally include computer equipment, office equipment, and motor vehicles. These are known as tangible assets. Furthermore, the net book value of the fixed assets is shown on the company’s Balance Sheet.

Fixed assets may include intangible assets, which are not physical in nature. To clarify, this includes goodwill, intellectual property, patents, trademarks, copywrites, etc.

Current Assets

A company’s current assets include various types of business assets. What’s more, these will usually include:

  • The Company bank account balances. All company bank accounts are included as of the statement date. Furthermore, this will consist of the balance of the company’s current account as well as the balances on any company savings accounts.
  • The company’s receivables at the statement date. These are known as trade debtors. In other words, they are the accounts receivable, showing the amounts owed to the company by its clients.
  • The value of any stock held by the company. Most importantly, the stock is listed at the cost price.
  • Any other amounts owed to the company. These could include any loans, such as director’s loan accounts. In addition, they’ll show up in the accounts as other debtors.

Current liabilities & creditors under and over one year 

A company’s current liabilities include all amounts owed to third parties on the Statement of Financial Position. Furthermore, this will consist of both short-term and long-term debts and liabilities. In addition, the statement shows separate totals for the creditors due under one year and over one year. These two amounts are the company’s total liabilities owed at the statement date. Typically, creditors are made up of the following items:

  • The amounts owed to the tax offices. This will include amounts owed for Corporation Tax, VAT and PAYE/NIC.
  • Any bank loans and overdrafts. Therefore, this will include the balances owed per the banks as of the statement date.
  • The amounts owed by the company to its suppliers. Indeed, the official term for this is trade creditors. What’s more, these are the accounts payable, which show the amounts the company owes to its suppliers.
  • The amounts payable for any costs and expenses at the end of the year. To explain further, these are called accruals.
  • Any other amounts owing by the company at the statement date. For instance, this could include a company credit card or a director’s loan account.

The Shareholders’ Funds

The shareholders’ equity or funds represent the company’s assets minus its liabilities. What’s more, these show the company’s net value/worth at the contractor Balance Sheet date. Therefore, this is the owner equity and comprises the share capital, share premium account, and the company’s retained earnings.

The shareholder’s fund section on the Statement of Financial Position is key financial information. Effectively, this shows the value, when converted into cash, which would return to the shareholders if the company closes. Indeed, if this took place, the business would cease operations. As part of this, it would liquidate its assets, settle its liabilities, and pay out all remaining funds to the shareholders.

In a typical UK contractor company, shareholders’ equity is usually the sum of the share capital and the retained profit & loss sheet figure. Basically, the P&L figure shows the business profits to date, which are still payable as dividends or as capital when the company closes.

Other thoughts 

Further thoughts on the P&L and Balance Sheet of a company

What’s the difference between a company’s P&L and Balance Sheet? When we consider P&L vs Balance Sheet, the key differences between the two pages are:

  • The company Profit and Loss statement shows how well the business has done. To sum up, this shows the business income and expenses. Moreover, it informs the reader if the company has made a profit or loss during the accounting year.
  • In contrast, the Balance Sheet shows how much the company is worth. Therefore, this shows its actual value at the year-end date. Furthermore, it shows all the amounts due to and from the company. Included in this are any long-term liabilities.

Therefore, the difference between the Balance Sheet and P&L is that the latter shows your trading results for the year in question. The former shows all balances owed by and to the business and overall retained profit (or loss). 

Contractor Profit and loss account and Balance Sheet & the importance these

To sum up, as a company contractor, you must prepare and file your accounts with the official bodies by law each year. Furthermore, you’re not likely to require them for any purpose other than sending them to Companies House and HMRC each year. Most importantly, the P&L and Balance Sheet are the statements that show your business’s financial results and latest position.

However, if you apply for a mortgage, the provider may ask you to provide copies of your accounts to the lender. Your accountant will typically help you do this.

In contrast, accounts are important documents for other businesses. However, why is a P&L account important, and why is a Balance Sheet necessary? To sum up, a company’s P&L shows how well it is performing in terms of its activities. In addition, the Balance Sheet shows the business’s financial health. In conclusion, lenders and potential investors will use the accounts to show how well the directors manage the company’s finances.

Today, accountants produce a company’s financial accounts on accounting software. In addition, online accounting software is now available for UK businesses. Most importantly, this helps maintain your company’s bookkeeping, VAT reporting, and payroll processing/reporting.

Self-employed contractors

You may be reading this as a self-employed person. In that case, this HMRC example shows how to carry the figures from your accounts into your Self-Assessment tax return. 

Final thoughts

The contractor Profit and Loss account and Balance Sheet (UK) are two key statements in your contracting company year-end accounts. Our guide shows examples of P&L accounts and Balance Sheets and explains how both reports work. We describe the relationship between P&L and the Balance Sheet whereby the overall P&L total feeds into the retained earnings in the Balance Sheet each year. For a non-accountant, the mechanics of company accounts are quite technical, but they may interest you as a business owner.

Most importantly, your contractor accountant handles the company reporting work when preparing your annual accounts. In addition, with your help, they’ll ensure the accounts are correct and accurate, as seen in our guide. The two key pages show how well your business is doing financially. Finally, periodically, you can review your business accounts, which give clues about where to improve things for the future.

Link to Contractor Advice UK group on

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Published On: April 6th, 2024 / Categories: Running Your Own Company /

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