Accounts

Every English company must prepare annual accounts that report on the performance and activities of the company during the year reported upon. The year reported on in the accounts is called the ‘financial year’, and this starts on the day after the previous financial year ended or, in the case of a new company, on the day of incorporation.

The legal and accounting term for a financial year is an ‘accounting reference period’, and this period ends on the ‘accounting reference date’ (or ‘ARD’).

This page gives a basic summary of the rules surrounding the ARD and the preparing and filing of accounts.

The ARD

As explained above, the ARD is the company’s financial year-end and marks the end of the company’s accounting reference period (the financial year). It is also the date by reference to which Companies House requires delivery of accounts to it.

For all new companies, the ARD is automatically set as the first anniversary of the last day in the month in which the company was incorporated (not the day it started trading). So if the company was incorporated on 26 November 2004 its ARD would be set at 30 November, and the first accounts would cover a period from 26 November 2004 to the ARD, i.e. to 30 November 2005 - or up to seven days either side of that date.

Subsequent accounts would then cover the accounting reference period starting on the day after the previous accounts ended (i.e. 1 December 2005), and finish on the ARD (i.e. 30 November 2006) or up to 7 days either side of it.

Although the ARD is set on incorporation, a company can change its ARD, within certain limits, but Companies House must be told in advance when the date is about to be changed. If not, the accounts will be prepared to the wrong date and Companies House will refuse to register the accounts and the company will have to prepare fresh accounts to the ARD held on record at Companies House.

A company can only change its ARD for the current or the immediately previous accounting reference period, and the change has to be registered before the filing deadline of the accounts. The ARD can be changed to shorten an accounting reference period as often as the company wishes, and by as many months as the company wishes. However, there are restrictions on changing the ARD to extend an accounting reference period:

  • The period may not be extended so that it lasts more than 18 months from the start date of the accounting period; and
  • With certain limited exceptions, the company may not extend the period more than once in 5 years.

Contents of accounts

Every trading company will usually require the services of an accountant to prepare its accounts, and possibly to ‘audit’ them. Auditing means that the accountants undertake a series of tests of the accounts, acting as an independent check on the accuracy of the accounts.

A set of accounts consists of the following items:

  • A profit and loss account (or an income and expenditure account if the company is not trading for profit);
  • A balance sheet signed by a director;
  • If the accounts need to be audited, an auditor’s report signed by the auditor;
  • A director’s report signed by a director or the secretary of the company;
  • Notes to the accounts; and
  • Group accounts (if appropriate).

The company’s accountant will advise on, and prepare, the specific content of each of these items.

However, certain information may be omitted from the accounts of ‘medium-sized’ and ‘small’ (including ‘very small’ and ‘dormant’) companies. These companies may also take advantage of certain exemptions to further abbreviate their accounts. ‘Very small’ companies and ‘dormant’ companies are normally exempt from audit. All the terms in this paragraph have specific definitions, which your accountant will explain.

Filing accounts

With the exception of certain ‘unlimited companies’ (which are hardly ever used and which we do not form), all English companies must both keep accounting records and file accounts at Companies House.

Although this surprises many directors and secretaries, this is true regardless of whether the company has traded or not.

There are deadlines by which accounts must be prepared and delivered to Companies House. If the company misses the deadline an automatic penalty will be levied by Companies House, almost without exception.

Special deadlines apply to the filing of a company’s first set of accounts. In all other cases private companies (whether limited by shares or limited by guarantee) normally have 10 months from the end of the relevant accounting reference period (i.e. from the ARD) to file their accounts at Companies House, whilst public companies normally have 7 months.

If accounts are delivered late, Companies House will impose an automatic fixed penalty for late filing. The amount of the fixed penalty depends on how late the accounts arrive and whether the company is private or public. At present the amounts are as follows:

Length Of Delay
Public Limited Company
Private LImited Company (limited by shares or by guarantee)
3 months or less £500 £100
More than 3 months but less than 6 months £1000 £250
More than 6 months but less than 12 months £2000 £500
More than 12 months £5000 £1000

Failing to deliver accounts on time also constitutes a criminal offence for which the directors and secretary of the company may be prosecuted. Companies House claims that on average more than 1,000 directors are prosecuted each year for failing to deliver annual accounts or annual returns to them on time. Persistent failure to deliver statutory documents on time may also lead to a director being disqualified from taking part in the management of a company, for a specified period.

To avoid these risks, and to make our clients’ lives easier, one of the standard company secretarial services that we provide to our clients is the filing of annual accounts on time.

This service is included in our ‘standard filing package’ for which we charge an annual flat-rate fee of £175 plus VAT. The package consists of :

  • Annual maintenance of shareholder and board meeting minute books;
  • Annual maintenance of statutory registers;
  • Preparation, checking and filing of the Annual Return at Companies House;
  • Checking and filing (but not preparation) of annual accounts at Companies House; and
  • Preparation of shareholder and board minutes to approve the accounts.

For further details of our company secretarial services and fees please click here.