Almost all registered companies in the UK are required to prepare annual accounts for Companies House and HMRC every year. The purpose of these accounts is to report the financial activity of the company and, subsequently, work out how much Corporation Tax it has to pay to HMRC.
Directors are legally responsible for making sure annual accounts are completed accurately and submitted by the statutory filing deadline. Copies must also be given to the company’s shareholders or guarantors (members).
Different types of limited company accounts
All companies, with the exception of ‘small’ companies, micro-entities, and dormant companies, must deliver full annual accounts, or ‘statutory accounts’, to Companies House and HMRC. These accounts consist of:
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a profit and loss account
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a balance sheet
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notes about the accounts
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a directors’ report
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an auditors’ report (unless the company qualifies for exemption)
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name and signature of company director
Small company accounts
Micro-entity accounts
Dormant company accounts
Small companies can file abridged (simple) annual accounts at Companies House, which simply consist of a balance sheet and notes about the accounts.
To qualify as small, your company must meet two of the following conditions:
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annual turnover below £10.2m
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a balance sheet total less than £5.1m
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fewer than 50 employees
Small company accounts are exempt from audit, so there is no requirement to include an auditors’ report. However, statutory accounts must still be provided to members and prepared for HMRC as part of the Company Tax Return.
Very small companies can prepare micro-entity accounts, which have even fewer requirements than small company accounts. To qualify as a micro-entity, your company must meet two of the following conditions:
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annual turnover below £632,000
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a balance sheet total less than £316,000
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fewer than 10 employees
Micro entities must still send statutory accounts to company members and to HMRC as part of their Company Tax Return.
Dormant companies only need to prepare dormant accounts. These are made up of a balance sheet and notes about the accounts.
They don’t have to send anything to HMRC, but they must tell HMRC that the company is dormant for Corporation Tax purposes.
How and when to deliver annual accounts to Companies House and HMRC
Your first annual accounts must be delivered to Companies House within 21 months of incorporation. These will usually cover a period of just over 12 months, starting on the date of incorporation and ending on the accounting reference date (ARD). The ARD is normally the anniversary of the last day of the month of company formation.
After the first year, accounts for Companies House will normally cover a 12-month period and should be delivered no later than 9 months after the ARD.
You can send annual accounts to Companies House via WebFiling or 1st Formations free Online Company Manager.
Full annual accounts for HMRC must be included with each Company Tax Return and filed online no later than 12 months after the end of each Corporation Tax accounting period.
What is my company’s accounting reference date (ARD)
All companies are given an accounting reference date (ARD) when they are registered at Companies House. This date represents the end of the company’s financial year.
The first ARD for a company will be the anniversary of the last day of the month in which it was incorporated, for example:
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You register a company on 1st July 2022
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Your first ARD will be July 31st 2023
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Annual accounts must be ‘made up’ to this accounting reference date and filed at Companies House no later than 9 months after the ARD
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The ARD will remain the same every year unless you shorten or extend your financial year
Should I use an accountant to prepare my annual accounts?
An accountant can be used by all types of businesses, from sole traders to multinational corporations. There are many benefits to be gained from doing so, not least the time and money you could save and the reassurance that everything has been done properly.
You should weigh up the amount of time you will have to commit if you do the accounting yourself, and whether paying fees to an accountant will be more cost-efficient than dedicating many hours of your own valuable time.
An accountant can help you with many other financial matters beyond accounts and tax returns. They can prepare financial projections during the planning stage, help you to grow your business once it’s up and running, identify appropriate tax saving opportunities, assist with audits, and offer advice on ways to raise additional capital.
Depending on the size of your business, you may require a full-time accountant. Most small businesses, however, only need to use an accountant periodically when accounts and tax returns have to be filed.
Main Functions and Benefits of an accountant:
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Structuring a company in the most tax-efficient way
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Working out the most effective way to remove money from a company
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Identifying tax-planning opportunities
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Claiming expenses
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Completing and filing statutory compliance documents
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Maintaining accurate accounting records
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Preparing and filing annual accounts
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Preparing Company Tax Returns and calculating Corporation Tax liabilities
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Advising about VAT and dealing with VAT calculations
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Handling Self Assessment requirements of company directors
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Keeping the company up-to-date with changes in taxation laws and legislation
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Maintaining all statutory company records and registers
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Advising on and recording share allotments and transfers
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Issuing and recording dividend payments to shareholders
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Managing payroll by ensuring all employees are given the correct tax code, and all payments are accurate and recorded
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Preparation of P46 and P60 paperwork
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Managing HMRC payslip booklets
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Suggesting areas where you can reduce costs and expenditure
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Utilising sophisticated accounting software that incorporates an audit trail. This is hugely beneficial in the unlikely event that a business is audited
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Assisting with loan or overdraft selection and applications. An accountant can provide valuable information to support applications, such as facts and figures relating to revenue projections and expenses. They are also better qualified to spot any unfavourable terms or conditions attached to banking services and agreements
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Handling growth transitions
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Managing inventory and pricing strategies
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Negotiating and structuring payment plans with suppliers and service providers