What are current liabilities?

What current liabilities mean

Liabilities are what a business owes. Current liabilities are the ones due within a year of the balance sheet date. In UK accounts they appear under the heading "Creditors: amounts falling due within one year". Anything due later, such as the long-term part of a bank loan, is a non-current liability.

Typical current liabilities for a small business include:

• Trade creditors, the suppliers you have not yet paid
• VAT owed to HMRC for the latest quarter
• PAYE, National Insurance and pension contributions from the last payroll
• Corporation Tax due nine months after the year end
• Bank overdrafts and credit cards
• Loan repayments due in the next 12 months
• Accruals and deferred income
• A director's loan account in credit, where the company owes the director

Example

A building contractor's balance sheet at 30 June shows:

Creditors due within one year	Amount
Trade creditors	£31,000
VAT	£12,500
PAYE, NI and CIS deductions	£7,800
Corporation Tax	£16,200
Bank loan, current portion	£6,000
Total current liabilities	£73,500

Its current assets total £96,000, giving net current assets of £22,500 and a current ratio of 1.31.

Why it matters for your business

Current liabilities are the bills that will hit your bank account soon. Comparing them with current assets shows whether you can pay them, which is the core of working capital management. Tax liabilities are worth watching especially closely: VAT, PAYE and Corporation Tax are money you are holding for HMRC, and spending it on day-to-day costs is a common route into cash trouble.

Lenders and credit agencies look at this section of your filed accounts. A business with large current liabilities and little cash may find it harder to get credit terms.

Keeping them under control

Move tax money into a separate savings account as you go, agree sensible payment terms with suppliers, and consider refinancing short-term debt that is really funding long-term assets. Regular management accounts make the picture visible every month, not just at the year end.

Before the year end, check that tax liabilities in your accounts match HMRC's records. Differences often reveal payments posted to the wrong account or returns that were amended, and catching them early avoids confusion when Corporation Tax is calculated.