Although there are benefits to registering a private limited company, one of the drawbacks is the requirement to prepare and submit Company Accounts every year. Penalties are given for late filing.

Many small busine​sses feel this is a necessary burden as the pros of registering a limited company outweigh the cons.

Some online accounting software can go a long way to getting all the data you need to file your company accounts but you are ultimately responsible for ensuring all the information provided is accurate and complete.

When you register a limited company in the UK, you are required by law to file Company Accounts also known as Annual Accounts. The full name of this filing is Company Statutory Accounts because their filing is required by law.

 

What is Corporation Tax?

The simple definition of Company Accounts is that it is a filing that shows HMRC your financial status for the last year, your earnings, and your tax-deductible expenditures. Your corporate tax return is a separate filing, although many companies submit it at the same time. Corporation Tax is different from what you pay as an individual. Registered limited companies are considered to be separate legal entities from their directors, employees, shareholders, or any other person connected with the business. That’s what makes them so appealing because it minimises the potential risk to directors’ personal finances if the limited company ever goes bankrupt.

Currently, the UK’s corporation tax stands at 19% for companies with profits lower than £50,000 for the year. Companies that have profits between £50,000 and £250,000 pay corporate tax on a rising scale, depending on how much they have earned, up to a maximum of 25% corporate tax for companies who score a profit of over £250,000 for the year.

Part of the frustration of Company Accounts is that they must be filed twice, once with HMRC, and once with Companies House.

Small businesses and micro-entities can submit to both HMRC and Companies House directly via the Companies House website.

Included in a Company Accounts is Director’s Report (if applicable), P&L Statement (if applicable), Balance Sheet Statement, Cash flow statement as well as additional notes and documents.

 

The Directors’ Report - A directors’ report is a statement of the financial status of a company, prepared by the directors of the company.

A small company or micro-entity which is exempt from providing an audit report (more info on this lower down) does not have to submit a directors’ report as part of the annual company accounts.

Micro-entities are defined as companies that:

Do not have a turnover greater than £632,000

Have a balance sheet total of no higher than £316,000

Have an average of 10 or fewer employees.

 

The P&L Statement - A Profit and Loss Statement (or P&L Statement, or Income Statement) is a financial report that lays out a company’s earnings and expenditures over a period of time such as one month, a quarter, or a year. (For the annual company accounts, a period of twelve months is used.)

Like the Director’s Report, this financial report is not mandatory for small businesses and micro-entities when submitting Company Accounts.

 

The Balance Sheet - The balance sheet is the first mandatory financial report for all companies submitting their Company Accounts, regardless of their size.

A balance sheet shows a company’s financial standing at a specific point in time. It is essentially a physical representation of the accounting formula which is “Assets = Liabilities + Equity.”

Many of the popular accounting software tools provide balance sheets at the click of a button.

 

Cash Flow Statement - The Cash Flow Statement shows the company’s precise cash situation over a period of time such as a month, quarter or twelve months. (For the Company Accounts, the time period would be twelve months.)

For companies operating on the Cash Method of accounting, the cash flow statement and P&L statement would be identical because the date of “income received” would be the date the cash actually entered the account and not the date of the invoice. But Limited Companies are forbidden from using the Cash Method of accounting in the UK, and must use the Accrual Method, so the P&L and Cash Statement would look different. (More info on this below.)

Limited Company Accounts must be prepared to very precise accounting standards to be accepted by HMRC. All the rules of accounting need to be followed and extensive knowledge of tax and accounting is necessary to understand all of what is being filed. Business owners often ask, “How can I prepare and submit my own limited company accounts?”

Legally you are allowed to do this, however, it’s best to use an accountant. You will save time, headaches, and likely also money as a result of no erroneous values being sent over to HMRC.

There is special accounting software that assists accountants to prepare company accounts. The license fees are pretty hefty so it still makes sense to hire an accountant

 

When do limited company accounts need to be filed?

Company Accounts must be filed precisely nine months after the company’s fiscal year-end. In your first year of business, however, your first set of Company Accounts is only due 21 months after the date of incorporation.

If you’ve lost track of your filing dates, Companies House will be able to provide these for you. Just type in your company number into the Companies House website and they will be able to give you the details on when your filing is expected.

 

What happens if you don’t file Company Accounts with Companies House at the appropriate time?

If you miss your filing date for your limited company accounts, you will instantly be fined £100 by Companies House. This number escalates rapidly to as high as £1,500 so, unless you like throwing money away, it is imperative that you stay on top of your Company Accounts filing date or that you have an accountant that competently takes care of this for you.

If you miss filing for a second year, then the penalty doubles! Repeated violations can also lead to time in court defending yourself

Now, it gets a little more confusing because the Company Accounts gets filed nine months after the company’s fiscal year-end, your Corporation Tax Return doesn’t need to be filed until twelve months after the end of your company’s fiscal year. But your company’s tax bill needs to be paid nine months and one day after the end of your company’s fiscal year.

Confused yet? Yes, it’s a confusing set of dates.

 

Just like Company Accounts, there is no free software that can be used to prepare your Corporation Tax Return. Accountants use special accounting software (which they have to pay a fee for) to prepare the return.

Also like Company Accounts, if you fail to submit the Corporate Tax Return on or before twelve months after the end of your company’s fiscal year, you will receive an immediate £100 penalty, and it escalates rapidly from there.