A Guide to Preparing and Submitting Company Accounts to Companies House Business Information Factsheet BIF069 May 2016 Introduction All businesses must keep accounting records for tax purposes, and a business that operates as a limited company must also submit a set of statutory accounts to Companies House every year. An accountant usually carries out this work, but a company's directors are ultimately responsible for ensuring that it happens, so company directors should be aware of what the law requires them to do. This factsheet explains when accounts must be submitted to Companies House, what information most companies are required to submit and the exemptions that allow a company to submit less detailed information. It also explains the penalties involved for late filing of accounts. A company's accounting and reporting requirements All limited companies, regardless of their size and whether they are trading or not, must keep adequate accounting records and prepare annual accounts that report on their trading activity during the year. The accounting records should: Give details of the company's transactions, which enable the company's financial position to be reasonably assessed at any point in time. Provide details of all money received and paid on a day-to-day basis. Record the assets and liabilities of the company. Enable the company to keep appropriate records that account for stock. To achieve this, most companies use accounting software to record their financial transactions and must keep copies of all bank statements, sales invoices, purchase invoices, payroll records and VAT returns. Annual accounts are required for two main purposes: To inform members (or shareholders) of the company's financial performance and status. To appear on the public record at Companies House. A company's accounts will also be reviewed and used by its bank, finance providers and suppliers when providing credit or finance. BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 1 of 7
Financial accounting period The period reported on in a company's accounts is known as the financial year. A more precise term for the financial year is the accounting reference period (ARP), with the last day of each ARP being known as the accounting reference date (ARD). The first ARP starts on the day that the company is incorporated, and by default the first ARD is the first anniversary of the last day in the month in which the company was incorporated. For example, if the company was incorporated on 15 September 2014, its ARD would automatically be set at 30 September. The first accounts submitted would cover a period from 15 September 2014 to 30 September 2015 and the second ARP would begin on 1 October 2015 and end on 30 Sept 2016. Although the ARD is set when the company is incorporated, it can be changed by completing Form AA01 and sending it to Companies House. The ARD can be changed as often as required if the change has the effect of shortening the ARP. But (unless the company is in administration) the ARP cannot be extended more than once in five years and the period that the accounts cover cannot be extended to more than 18 months. What do the accounts have to include? Generally, the accounts that are submitted to Companies House must include: A profit and loss account. A balance sheet signed by a director. A signed auditor's or accountant's report. A directors' report signed by a director or the company secretary. Explanatory notes to the accounts. Cash flow statement (if appropriate). Group accounts (if appropriate). All companies (except qualifying small companies as defined later in this factsheet) must include a business review with the directors' report in their annual accounts. A business review is a report that provides the information necessary for an understanding of the performance and position of the company's business and future development. Audited accounts Unless the company qualifies for an exemption, the accounts that are submitted must have been scrutinised by an auditor. The auditor's task is to make an independent report to the company's members, stating that the accounts have been properly prepared in accordance with company law and relevant accounting standards. The report must also state whether a company's accounts give a 'true and fair' view of the company's affairs at the end of the year and whether the information given in the directors' report is consistent with the annual accounts. Audited accounts can only be produced by a currently qualified auditor, for example an accountant with a current audit-practising certificate. These qualifications are subject to strict regulation by the professional accounting bodies, such as the Institute of Chartered Accountants BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 2 of 7
in England and Wales (ICAEW, www.icaew.com). The auditor must also be independent and therefore cannot be an officer or employee of the company or an associated company. Auditors are initially appointed by a company's board of directors and their appointment is deemed to continue until new auditors are appointed or an audit is no longer required. The auditor will review and compare the company's management accounts, including the balance sheet, profit and loss account and cash flow statement, against the accounting records and make any amendments or adjustments necessary to the management accounts as a result of this review. They will also review the financial controls used by the company and identify any failings, such as insufficient accounting records being kept. If the auditor has not been able to obtain all the information and explanations from the directors that they consider necessary to complete their audit, they must state this. It is a criminal offence under the Companies Act 2006 for directors, officers or employees, to 'knowingly or recklessly' provide misleading information to the auditor. Small company audit exemptions A company may be exempt from having its accounts audited under the Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008. Rather than producing audited accounts, the directors of eligible companies can choose to produce unaudited financial statements, which are subject to less testing and checks than audited accounts and which have a lower associated cost. To be eligible for this exemption, a company must satisfy two of the following criteria for accounting periods starting on, or after, 1 January 2016: A turnover of less than 10.2 million. Gross assets of less than 5.1 million. An average of fewer than 50 staff. For accounting periods starting before 1 January 2016, a company could be exempt from audit requirements if it satisfied two of the following, including having a turnover of less than 6.5 million, gross assets of less than 3.26 million and an average of fewer than 50 staff. However, certain small companies are ineligible for exemption, even if they satisfy the financial criteria listed above. In particular, all public companies, those involved in insurance and other similarly regulated financial trading, and any company that is part of a group that is itself ineligible, are specifically excluded. Even if a small company qualifies for audit exemption, it may still be required to have an audit if this is: Stipulated in its articles of association. Requested by shareholders owning at least 10% of the company's shares. A requirement of any funding agreement a company may have with its bankers or other lenders. The directors of an eligible company that makes use of an audit exemption must make a formal declaration of the members' decision not to submit its accounts to audit. BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 3 of 7
Submitting abbreviated accounts If a company qualifies as a 'small company', it may be able to prepare and deliver abbreviated accounts to Companies House. Abbreviated accounts may be submitted by qualifying companies, regardless of whether or not they have been audited. The accounts will need to include only: A simplified balance sheet signed by a director. Notes explaining only the figures given in the balance sheet. A special auditor's report, unless you are also claiming audit exemption. If abbreviated accounts are submitted, less financial information is disclosed on the public record. In particular, no details relating to the company's annual turnover or profits (or losses) are reported. Micro-entity accounts exemptions Some very small companies qualify as 'micro-entities' and may submit accounts according to special provisions that enable them to disclose significantly less information than even small companies. To qualify as a micro-entity, a small firm must meet two out of the following conditions: Turnover must not exceed 632,000. The average number of employees must be fewer than ten. The balance sheet total must be 316,000 or less. Certain entities, such as limited liability partnerships (LLPs), overseas companies and charitable companies, are excluded from qualification as a micro-entity. Micro-entity accounts must include a balance sheet, directors' report, profit and loss account, auditor's report and notes to the accounts. The accounts must include a clear statement above the director's signature and printed name, indicating that 'the accounts have been prepared in accordance with the micro-entity provisions'. Go to www.gov.uk/government/publications/life-of-a-company-annual-requirements for more information about micro-entities accounts exemptions. Group accounts If a company owns another company, it may have to file group accounts, which comprise a consolidated profit and loss account and balance sheet for all companies in the group, as well as for the parent company. A qualifying small company has an option to prepare group accounts, providing the group as a whole qualifies as a small company. Companies not qualifying as small companies are required to prepare group accounts, as well as separate accounts for each company in the group. The requirements for preparing group accounts can be complex, so should be discussed with an accountant. BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 4 of 7
Dormant companies A company is classed as 'dormant' if it has no 'significant accounting transactions' during its ARP. If a company has not traded since it was incorporated, Form AA02 should be completed and submitted to Companies House, as the record of annual accounts filing. This form is only suitable for dormant companies where the only transaction is the issue of the subscriber shares and the company is not a subsidiary. If the company has become dormant after trading, only simplified accounts need to be filed. These accounts need not include a profit and loss account or a directors' report, but must include a balance sheet and associated notes. Anyone who manages a company that they think may be classed as dormant, should discuss their specific circumstances with their accountant. Filing accounts at Companies House All private limited companies and public limited companies (PLCs) must send their accounts to the Registrar at Companies House. If a company's first accounts are being filed and they cover a period of more than 12 months, they must be delivered to the Registrar within 21 months of the date of incorporation for private companies. For subsequent accounting periods, the time normally allowed for delivering accounts to Companies House is: For a private company, nine months from the ARD. For a PLC, six months from the ARD. All accounts submitted to Companies House are scanned for electronic storage, and are made available on the public record. Documents should be A4 in size, with black text printed on white paper. Accounts need to be approved by the directors before they are submitted to Companies House, and can be sent as hard copy documents through the post or by courier, as XML documents through the Companies House Software Filing service, or online via WebFiling. Go to www.gov.uk/government/organisations/companies-house/about/about-our-services#filecompany-information for more information about accounts submission methods and processes. What are the penalties for late delivery of accounts? There is an automatic penalty for late delivery of a company's accounts, with the amount depending on how late the accounts arrive at Companies House. The penalties that apply for private limited companies are as follows: BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 5 of 7
Failing to deliver accounts on time is a criminal offence for which company directors may be prosecuted. This may lead to fines being imposed on them by the criminal courts and to the company being struck off the public record. Circulating accounts to members All shareholders of a company are entitled to receive a copy of the company's annual accounts. Under the Companies Act 2006, there is no longer a requirement for a private limited company to hold an annual general meeting (AGM), which is when the accounts were traditionally laid before members, although an AGM may still be held by some companies, specifically if required by their articles of association. It is important to ensure that the accounts are sent to members within nine months of the company's financial year end, or if earlier, the date on which the accounts are filed at Companies House. Hints and tips Banks and credit companies rely on information available from Companies House to assess a company's creditworthiness and often require the reassurance of an independent audit. If a company qualifies for audit exemption, the directors need to decide whether unaudited accounts are appropriate to their circumstances. The directors of a company are legally responsible for ensuring the accuracy of its accounts. Using an accountant does not remove that responsibility. Avoid late filing penalties - plan ahead to ensure that enough time is allowed for the accounts to be properly prepared and approved by directors. Ideally two to three months should be allowed for the whole process. Paper copies of any of the forms mentioned in this factsheet can be obtained or forms can be submitted online by going to www.gov.uk/topic/company-registration-filing/forms. Companies House recommends its online filing services as the safest and most secure way to file accounts and other required information. Further information BIF 7 A Guide to Understanding Balance Sheets BIF 8 A Guide to Understanding Profit and Loss Accounts BIF 23 Duties of a Company Secretary BIF 25 Duties of a Company Director BIF 32 Choosing the Right Business Legal Structure BIF 38 Choosing and Using an Accountant BIF 167 A Guide to Setting up a Private Company Limited by Shares BIF 196 Glossary of Company Law Terminology BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 6 of 7
BIF 459 An Introduction to the Companies Act 2006 Useful publications 'Life of a company part 1: Annual requirements' Companies House Website: www.gov.uk/government/publications/life-of-a-company-annual-requirements Useful contacts Companies House provides registration and filing services, as well as useful leaflets and information. Tel: 0303 123 4500 Website: www.gov.uk/government/organisations/companies-house The Institute of Chartered Accountants in England and Wales (ICAEW) is a membership organisation representing accountants. There is a searchable directory of accountants on its website. Tel: (01908) 248250 Website: www.icaew.com The Institute of Chartered Accountants of Scotland (ICAS) is a membership organisation representing accountants in Scotland. Its website includes a 'Find a Chartered Accountant' facility. Tel: (0131) 347 0100 Website: www.icas.org.uk Chartered Accountants Ireland represents accountants in Northern Ireland and has a 'Find a member' facility on its website. Tel: (028) 9043 5840 (Northern Ireland office) Website: www.charteredaccountants.ie DISCLAIMER While all reasonable efforts have been made, the publisher makes no warranties that this information is accurate and up-to-date and will not be responsible for any errors or omissions in the information nor any consequences of any errors or omissions. Professional advice should be sought where appropriate. Cobweb Information Ltd, Unit 9 Bankside, The Watermark, Gateshead, NE11 9SY. Tel: 0191 461 8000 Website: www.cobwebinfo.com BIF069 Preparing and Submitting Company Accounts to Companies House - A Guide to Page 7 of 7