Annual Accounts for UK Limited Companies – Essential Guide

Every limited company in the UK is legally required to file annual accounts, also known as “statutory accounts”.

These accounts must clearly and thoroughly record the company's financial status and performance. They are a valuable resource for stakeholders, investors, and creditors, aiding them in making informed decisions.

Annual accounts take the shape of financial statements prepared at the end of a company's financial year, providing an overview of the company's financial activities for the preceding year.

What do annual accounts include?

The core components of typical annual accounts include:

• A Balance Sheet
• Profit and loss accounts (P&L)
• Director’s Report (unless exempt)
• Auditor’s Report (if applicable)
• Company director’s name and signature

So, let’s break these down a little.

The Balance Sheet

A balance sheet depicts the company's financial position at a specific date, usually on the last day of the financial year. It details the company's assets (what it owns), its liabilities (what it owes), and shareholder equity (the residual value in the business, which is essentially the difference between assets and liabilities). It includes data from day one of the business starting, up to the period end.

Profit and loss accounts (P&L)

This statement summarises the company's income and expenses throughout the accounting period only. It shows how much revenue the company generated, how much they spent on costs associated with these sales and finally the overheads including interest and tax. This ultimately indicates whether the company has made a profit or loss for the year.

Director’s report

All companies must include a director’s report with their annual accounts. The director's report outlines the company’s business review such as overall business activities, future prospects, relationship with employees, and other ESG factors. If the company is classes as a Small Company (or are exempt for other reasons), it does not have to include this business review element but must contain a statement to state that the company is taking advantage of the exemptions.

Auditor’s report

When an independent auditor has conducted an audit, they will express an opinion on whether the company accounts present a fair and accurate view of its financial position and performance. An audit and associated auditor’s report is mandatory for companies above the audit threshold and some specific company types, regardless.

Annual accounts may also include notes to the company’s accountants, providing additional context and detail supporting the information presented in the balance sheet and P&L accounts. These notes can explain things like accounting policies, information on significant events that may impact the accounts, and contingent liabilities.

What are small company accounts?

Companies House offers a simplified option for qualifying small companies. These abridged accounts provide a concise overview of the company's financial position. To qualify for filing abridged accounts, a company must meet at least two of the following criteria:

• Annual turnover is below £10.2 million
• Total balance sheet value is less than £5.1 million
• Fewer than 50 employees

The above limits are correct as at May 2024

What are micro-entity accounts?

In addition to small company accounts, even smaller companies may prepare micro-entity accounts. These generally have fewer requirements than small company accounts. To qualify as a micro-entity, a company must have:

• annual turnover below £632,000
• a balance sheet total of less than £316,000
• fewer than ten employees

The above limits are correct as at May 2024

Learn more about micro-entity accounts.

Annual Accounts filing deadlines

Annual accounts, as the name emphasises, must be filed annually. They must also be filed within a set time frame to avoid penalties and other issues with HMRC, creditors and investors.

There are different filing deadlines for first accounts (filed by newly formed companies) and subsequent accounts for the following years.

Failure to file annual accounts on time is a criminal offence with significant repercussions. Companies House can hit you with hefty fines, potentially damaging your credit rating. Even worse, your company could be struck off the register, and directors could face personal penalties in court.

Who are annual accounts for?

A company’s annual accounts have more than one intended audience, so it is vital to ensure they are correct and comprehensive. Typically, the following parties will need to see a company’s accounts if they apply to the company.

• Companies House: Companies House is the UK’s registrar of companies, and all limited companies must file their annual accounts with them. It’s worth noting that accounts filed with Companies House are publicly visible.
• Shareholders/Investors: If a company has shareholders who are not involved in the day-to-day running of the business, they will be entitled to receive a copy of the annual accounts. This enables them to keep informed of the company's financial health in which they have a stake.
• HMRC: A company’s Corporation Tax return (CT600) will usually be created alongside the accounts, this notifies HMRC of how much tax is payable.
• Creditors: A company’s creditors will want to see the annual accounts to assess the company's health and its ability to keep up with repayments and evaluate the risk for further lending.

Other things to consider

A company’s annual accounts must meet either UK GAAP or International Financial Reporting Standards (IFRS).

Both standards ensure consistency, transparency and accountability across UK companies. Ensuring there is a complete framework for preparing and filing financial statements, recognising assets, income, expenses, and liabilities, and correctly classifying transactions. Presentation is also important, and the Standards ensure that accounting principles are met to ensure stakeholders can gain the correct information.

Software can make annual accounts easier.

Whether for accountants preparing annual accounts for a client company or an in-house finance lead doing the work, yearly accounts preparation can be a painstaking task. Fortunately, the days of manual filing and endless stacks of paper are gone.

Software solutions for accounting, such as Xero, can enable you to create real-time reports throughout the year, reconcile your bank accounts more efficiently, bank all payments received, and even invite your accountant to collaborate.

Using software not only makes the preparation of annual accounts easier, but it also helps reduce human error and can automatically highlight inconsistencies.

Annual accounts FAQs

How are annual accounts filed?

A company’s annual accounts can be filed online when ready and approved. The accounts for Companies House can be filed through their online services. Accounts for HMRC can also be submitted along with the Company Tax Return (CT600) through the Government Gateway.

Some exceptions exist, such as LLPs, which must file accounts by post rather than online.

Does an accountant need to prepare annual accounts?

An accountant is not legally required to prepare and file a company’s annual accounts. It is, however, very much recommended. This is especially so for large companies with complex finances. Experienced and qualified accountants can ensure your accounts comply with all regulations; a good accountant can even provide strategic advice on improving the company's financial health.

Where can a company’s annual accounts be found?

The annual accounts filed by any limited company are available for viewing and inspection on the Companies House website.

What if the company is making a loss?

If a company is making a loss, it still needs to file annual accounts. A company is not obligated to be profitable – the accounts will simply reflect the negative financial performance for the period.

Can a company change its Accounting Reference Date (ARD)?

A company can change its Accounting Reference Date. In order to do so, it must follow some specific steps and notify Companies House. It is worth noting that changing the ARD for a company may have an impact on the due date of subsequent annual accounts.

What happens if the accounts contain errors?

It is essential to ensure accuracy in all financial statements, as well as your annual accounts. If errors do occur, they can lead to major issues. The company may face fines, suffer reputational damage, and face legal action, depending on the severity of the errors.

What is the difference between annual accounts and annual confirmation statements?

Annual accounts provide a detailed financial overview of a company’s financial position and performance for a specific accounting period. This includes expenses, assets, and liabilities.

Conversely, the annual confirmation statement confirms the accuracy of the company’s information on Companies House. It typically contains basic information about the company and its officers but not financial performance information.

Both annual accounts and annual confirmation statements are necessary for maintaining transparency and staying compliant.