Key takeaways
What this article covers, in order:
- What it actually is (in plain English)
- The five groups every chart has
- A starter chart of accounts
- How to adapt it to your business
- Common mistakes
- A quick test of a good chart
A chart of accounts is the list of every category your bookkeeping uses, from "Sales" and "Rent" to "Bank" and "Loans", grouped so they roll up into a P&L and a balance sheet. For a chart of accounts UK small businesses can live with, 30 to 50 well-chosen accounts are plenty. Below is how the groups work, a starter list you can adapt, and the mistakes that make a chart harder to use than it needs to be.
What it actually is (in plain English)
Think of it as the set of labelled drawers your money gets filed into. Every transaction goes in at least one drawer. When you want to know how much you spent on fuel this year, you open the "Motor fuel" drawer and count.
In the UK you'll also hear it called the nominal ledger and the individual accounts called nominal codes. Same thing, older name.
The chart matters more than people think. A good one makes your reports readable at a glance. A bad one, with 14 different flavours of "Sundries", makes them useless.
The five groups every chart has
Every account falls into one of five groups. The first two make up the P&L; the last three make up the balance sheet.
| Group | What it holds | Where it shows | Normal balance |
|---|---|---|---|
| Income | Money earned from selling | P&L | Credit |
| Expenses | Costs of running the business | P&L | Debit |
| Assets | Things the business owns or is owed | Balance sheet | Debit |
| Liabilities | Things the business owes | Balance sheet | Credit |
| Equity (capital) | The owner's stake | Balance sheet | Credit |
UK accounts often split expenses into cost of sales (direct costs of what you sell) and overheads (everything else), and split assets and liabilities into fixed or non-current and current. That's the structure your accountant will recognise.
A starter chart of accounts
Here's a layout that suits a typical UK service or light-trading business. The numbering convention (income in the 4000s, cost of sales in the 5000s, and so on) is common in UK software, though not a legal requirement. Use whatever numbers your software suggests; the grouping is what matters.
Income (4000s)
| Code | Account |
|---|---|
| 4000 | Sales |
| 4010 | Sales: secondary stream (e.g. training, online) |
| 4900 | Other income (e.g. interest received) |
Cost of sales (5000s)
| Code | Account |
|---|---|
| 5000 | Materials and stock purchases |
| 5100 | Subcontractor costs |
| 5200 | Delivery and carriage out |
Overheads (6000s and 7000s)
| Code | Account |
|---|---|
| 6000 | Wages and salaries |
| 6100 | Rent |
| 6110 | Business rates |
| 6200 | Light, heat and power |
| 6300 | Insurance |
| 6400 | Repairs and maintenance |
| 6500 | Motor fuel |
| 6510 | Motor repairs and servicing |
| 6600 | Travel and subsistence |
| 6700 | Telephone and internet |
| 6710 | Software and subscriptions |
| 6800 | Advertising and marketing |
| 6900 | Accountancy fees |
| 6910 | Legal and professional fees |
| 7000 | Bank charges |
| 7010 | Payment processing fees |
| 7100 | Loan interest |
| 7200 | Depreciation |
| 7300 | Bad debts |
| 7900 | General expenses (keep this small) |
Assets (0000s and 1000s)
| Code | Account |
|---|---|
| 0010 | Equipment (cost) |
| 0011 | Equipment (accumulated depreciation) |
| 0020 | Motor vehicles (cost) |
| 0021 | Motor vehicles (accumulated depreciation) |
| 1000 | Stock |
| 1100 | Trade debtors |
| 1110 | Prepayments |
| 1200 | Business current account |
| 1210 | Business savings account |
| 1230 | Petty cash |
Liabilities (2000s)
| Code | Account |
|---|---|
| 2100 | Trade creditors |
| 2110 | Accruals |
| 2200 | VAT control (if registered) |
| 2210 | Payroll liabilities (if you employ people) |
| 2300 | Business credit card |
| 2400 | Bank loan |
| 2500 | Director's loan account (limited companies) |
| 2900 | Suspense |
Equity (3000s)
For a sole trader or partnership:
| Code | Account |
|---|---|
| 3000 | Capital introduced |
| 3100 | Drawings |
| 3200 | Retained profit |
For a limited company:
| Code | Account |
|---|---|
| 3000 | Share capital |
| 3100 | Dividends |
| 3200 | Retained earnings |
That's around 50 accounts. Plenty of businesses will need fewer. A freelance copywriter with no stock, no van and no staff might use 25.
Two things in that list are worth a quick note. The VAT control account and payroll liabilities are just holding places for money owed, so the balance sheet is right. What goes into them and how it's reported is your accountant's territory, not something your chart decides. And the director's loan account can sit on either side of the balance sheet depending on who owes whom; your software and accountant will show it in the right place.
How to adapt it to your business
Add accounts where you'll want answers
A café wants "Food purchases" and "Drinks purchases" separate, because they'll want to know gross margin on each. A builder wants "Plant hire" separate from "Tools". A landlord wants "Letting agent fees" and "Repairs" by property type. Ask yourself: what question will I want to answer in six months? Make an account for that.
Don't add accounts for every supplier
You don't need "Amazon", "Screwfix" and "Tesco" as separate accounts. That's what supplier names on transactions are for. Accounts describe what you bought, not who from.
Keep "general" and "sundries" tiny
If more than a few percent of your spending lands in general expenses, your chart is missing an account, or someone's being lazy with the review list. It's usually the second one. We've all done it.
Common mistakes
Personal spending in overheads. If the business card buys your family's groceries, that's drawings (sole trader) or the director's loan account (limited company), not "Staff welfare". Get it out of the P&L.
Capital items in repairs. A £2,400 new oven isn't a repair; it's equipment. It goes to a fixed asset account and gets depreciated. Where the line falls between a repair and an asset can be a judgement call, so check anything sizeable with your accountant.
Loan repayments as an expense. Only the interest part is an expense. The capital part reduces the loan liability.
Changing the chart every month. Pick a layout and stick to it for the year. Merging or renaming accounts mid-year makes month-to-month comparisons meaningless. Do your tidying at year end.
A quick test of a good chart
Open last month's P&L and ask:
- Can I see my gross margin without a calculator?
- Is "General expenses" less than 2 or 3 percent of costs?
- Could my accountant read this without ringing me?
- Can I tell what I spent on my biggest three cost areas?
Four yeses and your chart is doing its job.
How HelloBooks helps
Once you connect your bank through Open Banking or import a CSV statement, transactions land in a review list where you confirm or change the category for each line. On Pro, AI auto-categorisation suggests the category for you. The P&L, balance sheet and cash flow report on the Free plan all roll up from the chart, and Pro adds AI Analysis on every report.
If you hold stock, inventory tracking is covered on its own page. For a full list of what's included, see bookkeeping features, or start on the UK site.
FAQs
How many accounts should a small business have?
Usually between 25 and 50. Fewer than that and reports get vague; more than that and categorising becomes slow and inconsistent.
Are nominal codes the same as a chart of accounts?
Yes. "Nominal ledger" and "nominal codes" are the traditional UK terms. "Chart of accounts" is the more common modern name.
Is there a standard UK chart of accounts?
There's no legal standard for small businesses. The numbering in this post is a common convention, not a rule. What matters is that accounts roll up correctly into the P&L and balance sheet.
Can I change my chart of accounts later?
You can add accounts any time. Renaming, merging or deleting is best done at year end, and ideally after a word with your accountant, so comparisons stay meaningful.
Do sole traders and limited companies need different charts?
Mostly the same, except for equity. Sole traders use capital and drawings; limited companies use share capital, dividends and a director's loan account.
Start with fewer accounts than you think you need. It's easy to add one; it's a chore to merge three.
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