What Are Annual Accounts?
Annual accounts are commonly called "financial accounts", "business accounts" or "legal accounts". Annual accounts provide a complete account of a company's financial activities for the most recent financial year. The information in the accounts is used to prepare a tax return for HMRC and estimate the amount of corporation tax payable by a company.
What Types of Annual Accounts are There?
All companies, whether commercial or inactive (non-commercial), are obliged in one way or another to prepare accounts and send copies to their members (shareholders) and to the Companies House. Commercial companies must submit accounts with HMRC together with each company's tax return.
There are 5 types of UK company accounts:
● small business accounts
● Micro-entity accounts
● large corporate accounts
● Medium business accounts
● Inactive business accounts
There are three classifications of business accounts for business companies: small, medium and large. Within the small business classification, there is a subgroup called micro-entity that applies to very small businesses. The size of a business is determined by various thresholds for annual revenue, total assets, and an average number of employees, each of which affects the amount of accounting data needed for accounting. Inactive companies only need to create inactive accounts for Companies House. You are not required to file accounts with HMRC or complete any tax returns if you do not operate during your tax year.
What is Included in Fully Legal Annual Accounts?
With the exception of dormant companies and small businesses, all companies must file complete statutory financial statements with Companies House. The Directors of the Company have a legal responsibility to ensure that accounts are processed in a timely manner within the legal filing deadline. Shareholders must also have submitted a copy of the financial accounts.
The following must be included in the fully legal annual accounts of a company:
A balance sheet that shows the value of everything that belongs to your company.
An income statement showing the business's selling and operating expenses and profit or loss for the most recent tax period.
Notes to the Annual Accounts.
Name and signature of the administrator on the balance sheet.
The audit report, unless the company is exempt from it.
Some companies are exempt from preparing full constitutional accounts for Companies House. “Small” companies and micro-businesses can prepare condensed accounts consisting of a balance sheet and schedules, but they are always required to prepare constitutional accounts for their members.
Who Must Submit Annual Accounts?
All businesses must file their accounts online with HM Revenue and Customs (HMRC). Accounts must be filed with CT600 (corporate tax return) and corporate tax calculations (your tax calculations).
Invoices must also be submitted to Companies House online or by mail.
It is possible to submit a joint application through the HMRC website.
Small businesses have the option of submitting shortened invoices or micro-businesses (shorter or simpler invoices).
When You Should File Your Financial Statements?
As explained, the annual accounts usually cover a period of 12 months. The deadline for filing the company's accounts with Companies House is nine months after ARD(Accounting Reference Date). This reflects the end of the fiscal year and generally falls on the last day of the month in which the company was founded.
Also, if your company's first financial year is longer than 12 months, you must submit your first company's accounts to Companies House within 21 months of incorporation (instead of 9 months).
What Is a Financial Year?
A Financial Year is generally a 12-month period for which financial statements are prepared. Your company's financial year begins on the day following the end of the last financial year or the day the company were founded.
Note that the fiscal year is determined based on the period ending on a specific date called the accounting reference date (ARD). You can choose to create your accounts for ARD or for up to 7 days on any ARD site.
What is Accounting Reference Date(ARD)?
It is usually abbreviated as ARD and an accounting reference date is applied specifically when a company is required to file its financial statements. The normal ARD of a company occurs on the last day of the month in which it was registered with Companies House.
For example, a company incorporated on May 8, 2022, has an ARD on May 31. Therefore, the first ARD for this company will be May 31, 2023. Thereafter, the ARD will fall on this date every year, unless the company decides to change it. Any ARD adjustment will change the scope of the Company's financial year.
Can an Accounting Reference Date Be Changed?
A company's ARD can be changed at any time before the registration deadline. However, this cannot be changed if a company has overdue accounts. You can shorten your 12-month tax year by as many months as you need.
However, a fiscal year can only be extended once every five years and up to 18 months from the date of foundation or ARD of the previous year. To change your company's ARD, the company director must complete Form AA01. It is a simple process and only takes a few minutes. Unless you make other changes to your financial year, the new ARD is the date all subsequent financial statements are prepared.
How do I File My Annual Return?
1. HMRC: Companies must register with HMRC to submit online and receive a user ID and password. Click here to register for HMRC tax.
2. Companies House: To apply online, companies must obtain an approval code from Companies House (which is completely different from HMRC). Click here to sign up for Companies House WebFiling.
Alternatively, accounts can be booked at Companies House. For more details click here.
Use our corporate tax service to see how much you owe for the current tax year.
What are the Penalties for Late Filing?
Late submission of fines by HMRC is:
● less than three months late - £100
● More than 3 months - £200
● More than 12 months - 20% of the tax due.
Can I Prepare My Own Limited Company Accounts?
You can choose to prepare your financial statements for your limited liability company, including the preparation and presentation of your financial accounts.
However, most companies hire an accountant to manage their finances. The structure and duties of a company's accounts are more complex than the individual owners, which makes it difficult to do everything yourself. If you make a mistake, there are heavy penalties.
Accountants are experts in corporate finance - hiring a good accountant can save you a lot of stress by reporting your accounts to HMRC and Companies House. They can help you meet all legal requirements, avoid fines, and ensure business accounts comply with accounting standards.
However, it is important to understand that even if you hire an accountant, business owners are still the ones legally responsible for ensuring that the accounting is accurate.