Statutory or annual accounts are an important means of giving your company a financial health check.

This clarity is good for you, for your directors, and your shareholders. It means everybody can see how your company is performing.

Keeping up-to-date records and submitting them annually is also a requirement of Companies House.

Plus, you’ll need to pay corporation tax. Your statutory accounts provide the essential information for HMRC to calculate your tax bill.

You can lengthen your company’s financial year:

• To a maximum of 18 months or longer if your company is in administration
• Once every five years

You can only lengthen the financial year more often than every five years if:

• The company is in administration
• You’re aligning dates with a subsidiary or parent company
• You have special permission from Companies House

Your financial year-end is your accounting reference date (ARD). You get this date when you register your company at Companies House.

Statutory accounts are due no less than nine months after your ARD.

When you first register your company, your accounts are due within 21 months after your month of incorporation and cover the first 12 months of trading, ending on your ARD.

You MUST submit your accounts within the deadline or you will face a penalty. This penalty increases depending on the lateness of your documents:

• One day late: £100
• Up to three months late: £375
• Three to six months late: £750
• Six to 12 months late: £1,500

If you submit your accounts late two years running, the penalties double. You can also risk having your company struck off.

We will prepare and submit your accounts for you. We do this electronically once you’ve given us your Companies House Authentication Code.

You should have received this six-character code when you registered your company.

But don’t worry if you haven’t got it. It’s easy enough to put in a request for it from Companies House. Normally this takes between five and 10 days to process.

Alternatively, we can still submit paper accounts for you to Companies House.

Two accounting standards are applicable in the UK:

• FRS 102
• FRS 105

You must prepare your statutory accounts according to one of these standards.

We can explain which of these will apply to your company, and help you prepare your accounts accordingly.

Under FRS 102, you must submit your full annual accounts, including:

• Balance sheet
• Profit and loss account
• Notes about the accounts
• Director’s report
• Auditor’s report (depending on the size of the company)
• Name and signature of the company director

Under FRS 105, some companies can submit shortened accounts, comprising:

• Income statement (instead of the profit and loss account)
• Statement of financial position (instead of the balance sheet)

You can submit your accounts this way if your company is classified as a small business or a micro-entity.

You must keep financial accounting records, and records about the company itself.

Your accounting records should include:

• All the money your company spends and receives, including any money from government grants, such as Coronavirus support schemes
• Debts the company owes and debts owed to the company
• Details of your company assets
• Stock the company owns at the end of the financial year and the stocktaking method used to reach this figure
• All goods the company has bought and sold, including who the company bought them from and sold them to

Your company records should include details about:

• Directors, shareholders and company secretaries
• Results of shareholder votes and resolutions
• Debentures – promises for the company to repay loans on specific future dates
• Indemnities – promises the company makes for payments should something go wrong that is the company’s fault
• Loans or mortgages secured against company assets

When you prepare your annual company accounts and tax return, you’ll need various financial records, calculations and other information.

You should maintain proper records of all these, including:

• Receipts, orders, delivery notes, petty cash books
• Invoices, contracts, sales books, till rolls
• Banks statements and correspondence

You’re legally required to keep accounting records. If you don’t, you could face a £3,000 HMRC fine or even disqualification as a company director.

Best Practices for Keeping Accounts and Company Records

First, put a system in place for your bookkeeping. You need to keep on top of all your accounting records, including your income, expenses and tax.

Keep simple records and keep them up to date.

The easiest way to do this is to use a cloud-based accounting platform, such as Xero.

Bookkeeping doesn’t need to be complex, but it does need to be regular and accurate.

Turn it into a habit, with a definite schedule for keeping track of your accounts routinely.

By staying on top of your company accounts in this way, you should avoid any nasty surprises at the end of your financial year.

Give each invoice you send out a unique number and stick to the system you establish. This will make it much easier to track the information you’ll need for your statutory accounts.

Keep all your petty cash receipts and record everything you spend.

Check your bank statements regularly. These should match your own records. If there are any discrepancies, don’t ignore them but investigate thoroughly. Sometimes the bank can make mistakes. If you’re using Xero or a similar cloud accounting platform, this will reconcile your accounts with your bank statements automatically.

Keep a close eye on your turnover. If you’ve not registered for VAT and your taxable turnover goes over the VAT threshold during the financial year, you’ll need to register for VAT.

Statutory accounts are statutory because your company must prepare and file them each year by law.

However, keeping accounts for a limited company is about more than staying on the right side of compliance.

Good accounting means you’ll always know how much cash you’ve got coming in and going out and whether you’re making a profit.

You simply cannot afford to neglect your company accounts.

Just as you can prepare your own accounts, so you can file them yourself too, if you wish.

You must file your statutory accounts with Companies House and your company tax return with HMRC.

Private limited companies that are exempt from being audited can submit their accounts and tax return together, online with HMRC. There are also ways of doing this using dedicated accounting software.

If your company does not have an auditing exemption, then you must submit your annual accounts and tax return separately.

For your tax return, you’ll need a Government Gateway user ID. You can file your statutory accounts with Companies House online.

Limited companies tend to have more complex accounts than sole traders. The process of preparing and submitting them is demanding of time and resources. You must ensure that your company year-end accounts comply with strict FRC UK accounting standards.

Company directors have legal responsibilities to maintain clear, accurate accounting records and to file them within the statutory deadlines.

Filing your own company accounts means taking on a huge burden of responsibility and being confident that your accounts are accurate and include all the necessary details and data.

Trust a professional, chartered accountant to submit your company accounts

Opting for a professional accountant to do your statutory accounts for you, means you can have full confidence in both the process and the outcome.

Plus, you get an additional pair of eyes with an in-depth view, examining your accounts and analysing your performance.

Nothing is stopping you from doing your own annual accounts, but this can involve a lot of work and take up your time.

Your accounts must include various elements:

• Balance sheet
• Profit and loss account
• Supporting notes

With each of these, you must ensure that the information you file is accurate and that you don’t omit any information that Companies House needs.

Your report should provide an accurate picture of your business’s financial activities to meet legal requirements.

If you’re a small company or micro-entity, you may be exempt from submitting a full set of accounts, including the director’s report.

The balance sheet is a statement giving details about your company’s assets and liabilities.

Fixed assets include vehicles and equipment. Current assets include cash your company holds and cash in its bank account

Liabilities are your short-term and long-term obligations, usually debts, requiring repayment.

The balance sheet in your statutory accounts shows how much money you have spent in the financial year. It is a snapshot of your company’s financial health.

The profit and loss account records your financial performance over time, showing your total revenue and expenses during the financial year. It shows your gross profit, which is your turnover figure minus the cost of your sales.

As part of your profit and loss account, you should also subtract administrative expenses such as salaries, pension payments, utility payments, rent and loans from your gross profit.

The supporting notes in your statutory accounts should provide supplementary information that supports and clarifies your financial data. You may wish to comment on specific balance sheet entries or profit and loss items.

The first time you prepare your company accounts, they are due within 21 months of the incorporation of your company. This will cover a 12 month period from your month of incorporation to your accounting reference date (ARD).

You receive your ARD when you register your company with Companies House. This becomes your end-of-financial year date. Your ARD stays the same, year on year.

After your first annual accounts, you will have nine months after your ARD in which to file your accounts with Companies House.

Under certain conditions, you can change your ARD to extend or shorten your financial year:

• You can extend your financial year once every five years, and up to 18 months from the incorporation date or the date of the previous year’s ARD
• You can shorten your financial year by as many months and as often as you want.

If your accounts are overdue or your company goes into administration, you cannot change your ARD.

If you’re late in submitting your accounts, you’ll face an automatic penalty.

For private companies the current penalty amounts are:

• Not more than one month late – £150
• More than one month but under three months – £375
• More than three months but under six months – £750
• More than six months – £1,000

If you file your accounts late in two successive years, the penalties double.

A dormant company is a company registered with Companies House that has had no significant transactions during its financial year.

These significant transactions include doing business and receiving income. They do not include fees paid to Companies House, penalties for late filing of accounts or money paid for shares when the company was incorporated.

A dormant company must still file its annual accounts with Companies House.

It does this by filing dormant accounts and including a confirmation statement. The form for doing this is AA02.

Statutory accounts are your company’s annual accounts. You must prepare them for:

∙ Companies House
∙ HMRC

Copies of your statutory accounts must also go to shareholders or members.

These accounts report your financial activity over 12 months. They provide the information for calculating how much corporation tax you will need to pay to HMRC.

A company director has a legal responsibility to file these accounts by the statutory deadline and ensure that they are accurate.

Full statutory accounts must include:

• Balance sheet
• Profit and loss account
• Notes about the accounts
• Director’s report
• Auditor’s report
• Name and signature of the company director

All limited companies in the UK must file their accounts with Companies House every year.

This applies whether your company is making a profit or a loss, breaking even or even not trading at all.

These company year-end accounts are your statutory accounts.

You’ll need to know:

• What these accounts must include
• When you need to file them
• How to prepare and submit them

FRS 105 is the financial reporting standard for companies classed as micro-entities.

It’s based on FRS 102 but is simplified further. Under the FRS 105 financial reporting standard, your statutory accounts must include:

• Balance sheet
• Profit and loss account

This simplified format reflects the size and nature of the micro-entities that can use it for their annual accounts.

For your business to qualify as a micro-entity, it must meet two of the following conditions:

• Annual turnover not more than £632,00
• Balance sheet total not more than £316,000
• No more than 10 employees

 Providing your business meets the conditions for being a micro-entity, then FRS 105 is an ideal option for preparing and filing your accounts in a simplified fashion.

For many small businesses, FRS 105 has become the norm. 

There are penalties if you’re late in paying your corporation tax and submitting your corporation tax return.

If your tax return is late, these penalties apply:

• If you’re late by one day, the fine is £100
• For three months, it’s another £100
• If you’re six months late, HMRC will estimate your bill and add a 10 per cent penalty to it
• For 12 months, HMRC will add a further 10 per cent to your estimated tax bill.

If you fail to pay your tax on time, HMRC will charge you interest on what you owe and may also add a penalty or surcharge.

HMRC can also force you to pay if you fail to pay on time. These enforcement actions include:

• Collecting the money you owe through your earnings or pension
• Using a debt collection agency to obtain the money
• Selling your assets to cover the debt
• Taking money from your bank or building society accounts
• Taking you to court
• Declaring you bankrupt or shutting down your business

Failing to pay your corporation tax bill is a serious matter with long-reaching and potentially devastating consequences for you and your business.

HMRC, therefore, suggests that you contact them as soon as possible if you think you will be late in paying your corporation tax. If your company is in tax debt, HMRC will want to discuss its finances with you.

Your first option is to make a proposal to HMRC verbally about how you will pay your tax bill.

HMRC may be willing to set up a payment plan to help you pay. Before doing this, they’ll ask to see cash-flow projections and your management accounts to get a clear idea of what you can pay immediately and how you can pay the remaining balance.

What they’ll be looking for is your willingness to reduce your tax debt as much as possible before you make a formal arrangement to pay in instalments. This may include selling company assets or releasing shares.

HMRC can ask company directors to put personal funds into the business, take out loans, or extend their credit.

If HMRC lets you pay your corporation tax in instalments, this is known as a Time to Pay (TTP) arrangement. This is an agreement between you as a taxpayer and HMRC. It allows you to pay your corporation tax in instalments rather than as a lump sum.

Generally, a TTP will only apply where you have short-term issues with your cash flow. If your late payment of corporation tax is due to deeper, ongoing problems with your business then this will not be an ideal solution.

The criteria for getting a TTP arrangement are rigid. HMRC will be reluctant to grant it if you’ve had this arrangement before. HMRC will look at how your company has communicated with it previously, and will want to see that you are organised with tax returns.

Basically, it will need reassurance that, if a TTP arrangement is agreed, you’ll be able to make regular payments on time.

If you fail to pay your instalments on time under this arrangement, HMRC will consider other measures to collect the outstanding tax payments.

There is an HMRC helpline for Time to Pay relating to corporation tax. Phone 0300 200 3835.

When HMRC sends you your corporation tax bill, this will show your 17-character reference number. This is the reference number for the accounting period you’re paying.

You’ll find this reference number on any HMRC payslip you receive.

You can also find it by going to your online HMRC account. You simply select to view account then go to accounting period.

You must use the correct reference number when paying your corporation tax. If you don’t, this may delay payment and could lead to penalties.

On the back of your payslip there’s information about which HMRC account to pay into:

• HMRC Cumbernauld, or
• HMRC Shipley.

If you’re unsure which HMRC account to use, choose Cumbernauld.

At present, the main rate of corporation tax in the UK is 19 per cent. This means you will pay tax on 19 per cent of your annual profits.

This figure applies to the upper earning limit, marginal rate, and lower limit of company earnings.

However, from April 2023, this 19 per cent rate will change and instead:

• The upper limit for profits over £250,000 will be 25 per cent
• The marginal rate for profits between £50,000 and £250,000 will be 25 per cent

The lower limit for profits under £50,000 will stay at 19 per cent.

There will be a marginal relief system in place for those companies with profits between £50,000 and £250,000. This will increase the tax rate gradually until it reaches 25 per cent.

Companies involved in North Sea oil and gas production currently pay a higher corporation tax rate and banks must pay an eight per cent surcharge.

Various forms of relief are available to help reduce your corporation tax bill. These include:

• R&D tax credits
• Capital allowances
• Super deduction
• Loss relief

The total amount you end up paying on corporation tax will depend on what allowances or other deductions you’re eligible to claim.

For example, SMEs can claim 14.5 per cent of qualifying R&D expenditure, which then comes off their corporation tax.

The annual investment allowance (AIA) lets companies deduct a maximum of £200,000 a year from their taxable profits. This mainly applies to money invested in plant and machinery.

The super deduction allowance runs until 31st March 2023, enabling companies to claim 130 per cent of plant and machinery investment against their taxable profits.

Companies can also offset their annual losses to reduce their corporation tax. You can carry trading losses back one year, so if your preceding year’s losses come off this year’s tax.

In your first four years and last year of trading, you can carry trading losses back three years, rather than just one.

You can carry trading losses forward too, deducting losses in this year from next year’s profit.

To pay your corporation tax bill, you must have registered your company with HMRC.

You must do this within three months of forming your limited company.

You will need these details to register with HMRC:

• The date you started the business – this will also be the start date of your first accounting period
• Your company’s name and Companies House registration number
• Your company’s main address
• The type of business
• The date up to which your annual accounts will cover
• Names and addresses of your company directors

After you’ve registered with HMRC, you can file your company tax return. This will form the basis of HMRC’s corporation tax calculation.

Once you receive your corporation tax bill from HMRC, there are various ways of paying it:

• Pay corporation tax online, via CHAPS (Clearing House Automated Payment System) or Bacs (Bankers automated clearing system)
• Pay it over the phone using telephone banking
• Direct debit
• At your bank or building society

Whichever payment method you choose, you must make sure that you pay by the HMRC deadline.

Therefore, make sure you understand how long your chosen payment method takes to clear. For example, CHAPS allows for same day or next day payments, whereas you should allow three working days with Bacs or direct debit.

If you’ve not set up a direct debit for this payment before, you should allow five working days.

Usually, the deadline for submitting your corporation tax return is 12 months after the end of your accounting period. This period is what your tax liability will cover.

The deadline for paying your corporation tax bill is separate, and is nine months and one day after the end of your accounting period.

Your company year end is the same as your accounting reference date (ARD).

If you fail to pay your corporation tax on time, you can face penalties. We’ll look at these in more detail later.

Here are the important dates for working out your corporation tax deadline:

• Accounting year-end date
• Nine months and one day after accounting year end – your corporation tax is due
• 12 months after accounting year end – your company tax return is due

Please note: if you’re a larger company with a turnover of more than £1.5 million, you should pay your corporation tax in instalments.

All UK incorporated companies must pay corporation tax.

To do this, they must prepare and file a tax return within time limits specified by HMRC.

This is a detailed administrative process that you really cannot afford to get wrong.

See how to pay your bill here:  https://www.gov.uk/pay-corporation-tax

Filing accounts is a statutory requirement for all limited companies in the UK. If you fail to file accounts you are committing an offence under the Companies Act 2006 and a fine and criminal charges may be brought against directors. 

Ultimately, it is the responsibility of the directors to ensure that accounts are filed on time. The company could be struck off the register and any assets would become the property of the Crown. The directors would then become liable for any unpaid debts. You could also be held in breach of your duty as a director.

Overdue company accounts will begin incurring fines as soon as they become late. These fines will keep increasing until accounts are finally received. 

If you file your accounts late two years running, fines will be doubled. As a consequence of receiving fines for late returns, you may find that the company’s credit score is negatively affected. This can result in problems with suppliers and other creditors and can make it more difficult to effectively operate as a business.

The penalties for private companies for late filing of accounts to Companies House are currently:

• Not more than 1 month: £150
• More than 1 month but less than 3 months: £375
• More than 3 months but not more than 6 months: £750
• More than 6 months: £1,500

You will automatically receive a penalty notice as soon as your accounts are overdue and the penalties will be doubled if they’re late two years in a row.

You should always aim to ensure that you meet the deadlines for submitting your company accounts. Not only does this avoid the risk of incurring unnecessary fines, failure to do so could result in legal consequences. 

While late submissions of a few days or weeks may only incur relatively low fines, the longer your accounts are overdue, the more severe the consequences can become.

Companies House has the legal power to pursue company directors for any late submissions. Over recent years, Companies House has been reviewing old cases and have become less tolerant of late submissions. 

Failure to submit your company accounts could, in some cases, result in directors being served with a court summons.

If you find yourself in receipt of a tax return, you have a legal obligation to complete and return it even if you don’t think it’s relevant. Failure to submit a return can have financial and, in some cases, legal consequences for individuals and businesses.

Every limited company is required to deliver accounts to Companies House. This is regardless of whether or not the company is trading or currently dormant, the size of the company or how well the company is doing commercially. If you are registered as a limited company you will be required to submit accounts in line with the appropriate deadlines.

There are a number of different options available to smaller companies that would like to file micro-entity accounts. One means is the online Companies House WebFiling service. To file your accounts with Companies House and HMRC at the same time, you use the Company Accounts and Tax Online (CATO) service. To access this, you’ll need to have Government Gateway details and a Companies House company authentication code.

It’s also still currently possible to file your accounts on paper and post them. In doing so you need to be sure to allow plenty of time to avoid delays and potential penalties.

Advantages and disadvantages of filing micro-entity accounts

Filing micro-entity accounts has both advantages and disadvantages. The key advantage for smaller companies is that it simplifies the whole process, reducing the amount of time it takes and allowing you to concentrate on other aspects of your business.

If you opt to file micro-entity accounts you won’t need to include certain documents such as a director’s report. If your limited company is very small, perhaps made up of yourself as a director along with one or two members of staff, then it’s unlikely you will need to supply any information to shareholders. When this is the case, the year-end accounts are principally an issue of compliance that needs to be taken care of but which shouldn’t take up too much valuable time.

However, if your business is at a stage where you’re looking for new investment to allow it to grow, then the limited information contained in micro-entity accounts may be a potential drawback. Would-be investors may prefer an in-depth picture of your current financial situation prior to making any commitments.  This is something that can be easily overcome by providing management accounts or filing under FRS102.

Micro-entity accounts will need to include:

• A profit & loss
• A balance sheet.
• An auditor’s report unless you choose to claim the Small Companies audit exemption.  We do not assist with auditor reports and they are not required for the majority of UK companies.

Micro-entity accounts differ from the abridged accounts that small businesses can file, in that they don’t need to include a director’s report. As many micro-entities are exempt from being audited, it’s unlikely that you will need to include an auditor’s report.

A micro-entity is described by the government as a ‘very small company’. In tangible terms this means that you’ll be considered a micro-entity if your company can meet two out of the following three criteria:

• An average of 10 employees or less over a 12 month period.
• You have up to £316,000 on your balance sheet.
• A turnover of £632,000 or less.

Are there any exceptions?

Even if your business meets two of these criteria, there are some legal exceptions that may mean you won’t be able file abridged accounts. Currently, not-for-profit organisations, limited liability partnerships, public limited companies and financial institutions such as a bank or lender cannot file abridged micro-entity accounts. Even if you don’t qualify as a micro-entity, it may still be possible to file accounts as a small company.

A micro-entity is the name given to UK-based private limited companies that are very small. Directors of micro-entities can save time when it comes to preparing and filing their accounts by submitting micro-entity accounts with Companies House. These accounts are in a vastly simplified format but contain all the key information that can be found in all statutory accounts.

If your company turnover is below the micro-entity threshold it could save you considerable time and effort. These rules were introduced to ensure that smaller companies were not subject to the same detailed and potentially onerous filing requirements as large companies.