Statutory financial statements are just one of the statutory compliance requirements that limited companies must meet. Experienced directors are likely aware of the many filing and reporting obligations they have. However, if this is your first time running your business as a limited company, it is crucial to understand how to ensure your statutory accounts are completed on time. This article will provide you with a practical summary of what you need to know to complete your legal accounting.
What are statutory accounts?
Statutory financial statements are known by many names, including financial statements, financial statements, and company accounts. These are a series of formal and standardized financial reports that provide an overview of the company’s financial performance over a specific period (usually 12 months) and must be filed each year with both Companies House and HMRC.
What is the purpose of filing statutory annual financial statements?
Filing your statutory accounts serves many important functions. First, statutory financial statements are a legal requirement to ensure transparency and accountability of the company to its shareholders, creditors and the public. Statutory qualifications are publicly accessible via the Company building register and therefore encourages companies to conduct their business conscientiously.
Secondly, they are necessary when it comes to assessing company performance. Financial statements provide valuable insight into the company’s financial activities, financial health, profitability and operational efficiency. Directors can use these reports to make informed decisions about how best to run the company, increase productivity and improve overall performance. Additionally, because a company’s accounts can provide insight into the company’s stability, potential investors and lenders can also review these reports before making a decision about whether to invest or lend funds.
Finally, you will need to complete your statutory accounting to calculate the amount of corporate tax your company will have to pay. As a company must file a company tax return with HMRC every year, providing the financial reports that make up your annual accounts is an essential part of this task.
Who has to complete the legal accounting?
In the UK, it is the directors of limited companies who must ensure that they provide their statutory accounts for the company. While many seek the expertise of a corporate tax advisor to help prepare financial statements on their behalf, directors remain legally responsible for the accuracy and timeliness of financial statements. This means that even if the accountant misses the deadline, the company managers will receive the penalty and the accountant’s accountability will not be taken into account.
Only limited liability companies are required to complete statutory financial statements. If you operate your business under another corporate form, such as a sole proprietor or partnership, you are not required to do this.
If you are planning to prepare statutory financial statements yourself, you may find our guidance on preparing full statutory financial statements helpful.
Who should receive statutory bills?
It has now been clarified that statutory accounts must be submitted to Companies House and HMRC. However, the regulations also require directors to provide copies of the accounts to all shareholders of the company and to all persons entitled to attend the company’s general meetings. Although this formality is more relevant for larger companies, it is worth considering as a smaller company when the time comes when you want to expand and grow your business.
What type of corporate accounts do I need to submit?
There are five different types of accounts for UK limited companies:
- Small Business Accounts
- Micro business accounts
- Accounts for medium-sized companies
- Accounts of large companies
- Dormant corporate accounts
As you can see, the type of corporate account you need to file depends on the size of your limited company or whether your business is currently in limbo. The smaller your business, the simpler your corporate accounts can be.
Micro, micro and dormant companies are permitted to submit “abridged” accounts, which are simpler versions compared to full statutory accounts. However, to do this, shareholders must agree to provide abridged financial statements rather than full financial statements. Another possibility is that they may be able to provide “filleted” accounts. Full statutory financial statements are prepared here, but important information is removed so that it is not made available to the public.
Medium and large companies, on the other hand, have no such options and must provide full legal accounting. These will likely also need to be audited (eligible medium-sized businesses may be exempt and will need to submit an audit exemption statement instead). The slight difference between medium-sized and large companies is that medium-sized companies may be able to omit certain details from the board’s report if they do not relate to financial information.
Can I submit small business accounts?
You can file a simpler small business financial statement if you meet at least two of the following conditions:
- Your company’s annual turnover is less than £10.2 million
- Their balance sheet is no more than £5.1 million
- You have no more than 50 employees
What to do with small business accounts:
Directors are generally required to prepare a profit and loss report, a balance sheet, any notes to the financial statements, a director’s report and an auditor’s report (unless exempt) for the company’s shareholders. You can then decide whether you want to attach the profit and loss report, directors’ report and auditor’s report (if available) to Companies House, as these are not mandatory for filing.
An alternative is to file an abbreviated financial statement. However, this is only possible if the company’s shareholders agree. You must file with Companies House the same version of the annual accounts that you provide to your shareholders. Short financial statements are a simplified version of the balance sheet that do not disclose certain details, including the company’s fixed assets, creditors and debtors, and your corporate taxes. If you wish, you can still send a profit and loss report, a directors’ report and an auditor’s report if you have filed condensed accounts with Companies House (although most companies choose not to).
How do I know if I qualify as a micro business for my business accounts?
Small businesses are further divided into a subset of even smaller businesses called microbusinesses. You qualify for your annual financial statements as a micro-enterprise if you meet at least two of the following criteria:
- Your company’s annual turnover is less than £623,000
- Their balance sheet is no more than £316,000
- You have no more than 10 employees
What to do for micro business accounts:
If you qualify as a micro-enterprise, all you need to do is prepare a balance sheet, a profit and loss statement with the minimum statutory requirements and a board report for your shareholders. The balance sheet provided to shareholders must match the balance sheet you filed with Companies House. However, you can choose not to submit the profit and loss account and the board’s report.
As a medium-sized company, what counts in the annual financial statements?
Your company is considered a medium-sized company if you meet at least 2 of the following thresholds:
- Their annual turnover is no more than 36 million pounds
- Its balance sheet is less than £18 million
- They do not hire more than 250 employees
What to do for medium-sized business accounts:
For medium-sized companies, your statutory financial statements must include a profit and loss statement, a balance sheet, a cash flow statement, notes to the financial statements, a board of directors’ report and an auditor’s report (unless exempt). You must prepare these in accordance with accounting standards that comply with the Companies Act 2006. These are either UK GAAP (Generally Accepted Accounting Principles) or International Accounting Standards (IFRS). Unlike small or micro businesses, every component of the company accounts must be submitted to Companies House.
What must be included in the accounting of a large company?
Large companies are companies that meet at least two of the following criteria:
- An annual turnover of over £36 million
- A balance sheet of £18 million or more
- Employ 250 people or more
What to do with large corporate accounts:
Similar to a medium-sized company, you will need to produce full financial statements for both shareholders and Companies House. This includes the profit and loss statement, the balance sheet, the cash flow statement, explanations of the annual financial statements, a report from the board of directors and a report from the auditor. The name and signature of the managing director are mandatory in the balance sheet and the management report. If you are a limited liability company, you have the choice between accepted accounting standards (GAAP or IFRS) to prepare your financial statements. However, if your company is listed, you must use the IFRS format.
Do dormant companies still have to submit annual financial statements?
For the purposes of filing your annual accounts with Companies House, you will be considered a dormant company where you have not carried out any material transactions during your financial year. However, it is important to be aware that the definition of dormant varies for HMRC. If you meet the requirements for an inactive HMRC tax return, you may not need to file a company tax return. However, this does not mean that you are not required to file your financial statements.
What to do with dormant company accounts:
Every limited liability company must fulfill its statutory accounting obligations every year, even if it is a dormant company. Don’t forget that dormant companies are also required to file their confirmation statement with Companies House every year, which is a separate legal obligation.
When is the deadline for filing statutory financial statements?
One of the most important aspects of preparing your company’s statutory financial statements is filing them on time. Each company has its own deadline, which depends on the company’s balance sheet date. The booking cut-off date is automatically set to be the anniversary of the last day of the month since you first registered the business with Companies House. Your submission deadline is then usually 9 months from your accounting deadline. The exception to this only applies to the initial filing of your statutory financial statements, where there is a longer time frame.
An example of a legal account deadline:
- You start your company on July 16, 2020
- Your billing date is July 31st each year after Your first submission. Your The submission deadline is 9 months after the balance sheet date, i.e. April 30th.
- Your deadline for submitting your First statutory accounts with Companies House is 21 months from the date of founding, i.e. April 15, 2022
- The deadline for your second filing is April 30, 2023 and will remain April 30 each year thereafter unless you decide to change the billing cycle
If necessary, you can change your billing cycle. You can bring the date forward by as many months as you like, as often as you like. However, you can only extend your year-end by a maximum of 18 months once every 5 years.
What are the penalties for failing to meet the deadline for closing the company?
If you file your annual accounts with Companies House late, you are likely to pay penalties. You will automatically receive fine notices, the amount of which increases depending on the delay in your submission:
- Up to 1 month after the deadline the amount is £150
- 1 to 3 months after the deadline is £375
- 3 to 6 months after the deadline is £750
- More than 6 months after the deadline the amount will be £1,500
These fines double if your company’s accounts are delinquent for two years in a row. Additionally, continued failure to file your annual accounts could result in your company being struck off the register.
What is the difference between statutory accounts and managerial accounts?
An important clue to the difference between statutory accounts and managerial accounts lies in their names. Statutory financial statements are a legal obligation and mandatory for all limited companies, while management financial statements are optional and are intended for internal reporting, review and decision making for those running a limited company and not for legal compliance.
The management account report can consist of the same financial reports that are included in the statutory accounts. However, an important difference is that it can include as many other KPIs as are relevant and necessary. There is also no requirement to follow any formal financial reporting standards or adhere to a set formatting structure. For these reasons, management financial statements are often much more detailed and provide a more accurate picture of the company’s financial position than financial statements, which only provide a snapshot.
One of the main differences between administrative accounts and statutory accounts is the deadline. In the case of statutory deadlines, these must be completed within 9 months of the end of each financial year. In the case of administrative financial statements, however, they can be prepared as often as necessary per year without any formal deadlines (although regular review, e.g. quarterly, is recommended).
Get help with your legal accounting
If you are looking for an accountant to help you prepare and file your accounts, then look no further than our accounting practice in Oxford or Henley. We have an expert accounting and tax team with experience in preparing statutory accounts, dormant accounts and statutory audit accounts. To find out more about our legal accounting service, contact us using the online form.
