Almost all UK registered companies are required to prepare annual accounts for Companies House and HMRC. The purpose of these accounts is to report on the financial performance of the company and, therefore, to determine the amount of corporate tax to be paid to HMRC.
The directors are legally responsible for making sure that annual accounts are completed accurately and submitted by the statutory filing deadline. Copies must also be provided to the shareholders or guarantors (members) of the company.
Different types of limited company accounts
All businesses, except "small," micro, and dormant businesses, are required to file full annual or "statutory" accounts with Companies House and HMRC. These accounts consist of:
- a profit and loss account;
- a balance sheet;
- notes about the accounts;
- a directors’ report;
- an auditors’ report (unless the company qualifies for exemption);
- name and signature of the company director.
Small company accounts
Small businesses can file abridged (simple) annual accounts to Companies House, which simply consists of balance sheets and notes about the accounts.
To be considered small, your business must meet two of the following conditions:
- annual turnover below £10.2m;
- a balance sheet total less than £5.1m;
- fewer than 50 employees.
Small business accounts are not audited, so an audit report is not required. However, legal reports must be provided to members and prepared for HMRC as part of the corporate income tax return.
Very small businesses can generate micro-entity accounts that have even fewer requirements than small company accounts. To be eligible as a micro-entity, your business must meet two of the following conditions:
- annual turnover below £632,000;
- a balance sheet total less than £316,000;
- fewer than 10 employees.
Micro entities must continue to file official reports for their company members and the HMRC as part of their Company Tax Returns.
Dormant Company Accounts
Dormant companies only need to prepare dormant accounts. They consist of a balance sheet and notes about the accounts. They don't need to send anything to HMRC, but they must notify HMRC that the company is dormant for Company Tax purposes.
How and when to file annual accounts with Companies House and HMRC?
Your first annual accounts must be filed with Companies House within 21 months of incorporation. They typically cover a period of just over 12 months between the record date and the reporting date (ARD). ARD is usually the anniversary of the last day of the month in which the company was founded.
After the first year, Companies House invoices generally have a period of 12 months and must be submitted no later than 9 months after the ARD.
You can file annual returns to Companies House through WebFiling. Complete annual accounts for HMRC must include each Corporate Tax Return and must be filed online no later than 12 months after the end of each corporate tax return period.
What is my company's accounting reference date (ARD)?
When you register with Companies House, all companies receive an Accounting Reference Date (ARD). This date represents the end of the company's fiscal year. It is usually 12 months. A company's first ARD is the anniversary of the last day of the month in which it was founded. For example:
- You register a company on 1st July 2020;
- Your first ARD will be 31st July 2021;
- Annual accounts must be "completed" on this reporting date and must be filed with Companies House no later than 9 months after the ARD;
- This ARD will remain the same every year unless you shorten or extend your term.
Can I prepare my own company accounts?
The accounting and tax requirements of limited companies are much more complex than those of sole traders. Their accounts are much larger and must adhere to strict accounting standards and practices set by the Financial Reporting Council (FRC).
As a director, you are legally responsible for keeping accurate books and records, filing authentic financial statements with Companies House and HMRC, calculating your company's tax liabilities, and filing returns.
You need extensive bookkeeping and accounting knowledge to fulfill your obligations. You should hire an accountant if you understand that it might be difficult to carry out these tasks yourself.
There will be costs involved but you need to take into consideration that the fees you pay to an accountant can be less than possible fines or you spending your own time. An accountant can also suggest ways to optimise your tax bills and grow your business.