Every year in the UK, all registered companies must prepare annual accounts and file them with Companies House and HMRC. Businesses must accurately report on their financial activity during the tax year just gone.
The preparation of these accounts will establish how much profit has been made during the financial year, and therefore the amount of Corporation Tax that is payable to the Treasury.
It is the legal responsibility of a company’s directors to make sure the annual accounts have been completed, are accurate, and have been filed on time or before the statutory deadline.
What is included in the Annual Accounts?
For larger companies, annual accounts must include a balance sheet, a profit and loss account, any notes about their accounts, a directors’ report, a report by an auditor (unless the business is exempt), and the signature of the company director, along with their name.
If your business is defined as ‘small’, it only needs to file abbreviated accounts with Companies House. These include a balance sheet and any notes. However, for their Company Tax Return, they must still include full accounts.
To be a ‘small company’ it must have a turnover of £10.2m or less, £5.1m or less on its balance sheet, and have 50 employees or less.
The reporting requirements are simpler still if you fit the definition of a ‘micro entity’ – a turnover of £632,000 or less, £316,000 on its balance sheet, and 10 employees or less.
Micro-entities can submit even simpler accounts than ‘small companies’, and only need to send a balance sheet and less detail to Companies House.
If your company is dormant, its directors must still deliver accounts to Companies House, even if you undertake no business during the year in question.
You can find out the precise reporting requirements according to the size of a company here.
Accounting Reference Dates, and Deadlines
A company must file its first annual accounts to Companies House within 21 months of incorporation
It is typical for these accounts to cover a period of just more than 12 months, beginning with the date that the business was incorporated and running through to the end of the Accounting Reference Date (ARD).
This ARD is determined at the time of incorporation and represents when the company’s financial year ends. It is typical for the ARD anniversary to be in line with the last day of the month that the business was incorporated in.
For example, if you registered your company on 1st August 2017, your first ARD would be 31st August 2017.
Once the first year has come to an end, you will normally cover a 12-month period with your accounts for Companies House and are expected to deliver them within 9 months from your ARD.
Your ARD date won’t change each year unless you either shorten or extend your financial year. You (or your accountant) can change this date at any time prior to the filing deadline, but you cannot do this if your accounts are overdue (except if your company is in administration).
You can shorten your 12-month financial year by however many months you’d like, and can do so as often as you would like. However, you are only allowed to extend your financial year once every 5 years, and it must occur at least 18 months after your incorporation date, or the date of your previous year’s ARD.
To make this change, simply fill out Form AA01 and send this to Companies House. This can also be done via Webfiling.
If you opt to change your ARD moving forwards, the new date will continue to be the date your accounts must be made up to for all future annual accounts, unless you opt to make any more financial changes during that year. You must always keep HMRC notified of whatever you do, as this can affect your corporation tax accounting period.
Filing your limited company accounts
The deadline for submitting your accounts to Companies House is 9 months after your year end (ARD).
When you file your Company Tax Return (CT600), you must also include a copy of your Annual Accounts to HMRC.
Interestingly, the HMRC Tax Return is due 12 months after your accounting period comes to an end, but you must pay any tax you owe within 9 months and a day of this date.
This is one of those odd quirks of the corporate tax system.
All shareholders must be sent a copy of the accounts each year.
Use a professional
You can complete your company’s annual accounts yourself or (as the vast majority of us do) hire a limited company accountant to do this on your behalf.
Many people opt to use the latter simply because of how complicated limited company accounting and taxation can be. There are strict standards and practices that must be adhered to – which will beyond those who don’t have professional experience.
Directors are legally responsible for keeping accurate accounts, and therefore many mitigate this risk by seeking professional support.