Statutory Accounts in the UK: A Comprehensive Guide

As a UK company owner, you must prepare and file statutory accounts by law. These are also called annual accounts or financial statements. They help you meet your compliance obligations. This article will explain everything you need to know about statutory accounts in the UK, such as what they are, who must file them, how to prepare them, and when to file them.

What are Statutory Accounts?

Statutory accounts are financial statements that companies are legally required to prepare and file with Companies House and HM Revenue & Customs (HMRC) every year. The purpose of these accounts is to provide an accurate and comprehensive picture of a company’s financial health, including its assets, liabilities, and profits or losses.

Company management prepares management accounts for internal purposes and uses them to make decisions. External stakeholders, such as shareholders, creditors, and regulatory bodies, use statutory accounts to assess a company’s financial position and performance. Statutory accounts and management accounts differ in their intended audience and purpose.

Who Needs to File Statutory Accounts?

Limited companies, including small companies and micro-entities, must prepare and file statutory accounts. Sole traders and partnerships, on the other hand, do not need to file statutory accounts, but they must maintain precise records of their business transactions.

What Information is Included in Statutory Accounts?

Statutory accounts must include the following information:

A balance sheet showing the company’s assets, liabilities, and equity at the end of the financial year

A profit and loss account showing the company’s revenue, expenses, and profits or losses for the financial year

Notes to the accounts providing additional information and explanations about the figures in the accounts

A directors’ report explaining the company’s activities during the financial year and any major events that have occurred

An auditors’ report (if the company is required to have an audit)

How to Prepare Statutory Accounts?

Preparing statutory accounts can be a complex process, and it’s important to ensure that they are accurate and compliant with relevant accounting standards. Here are some key considerations while preparing them:

Choosing an Accounting Basis

While preparing statutory accounts companies can choose to use one of two accounting bases: cash basis or accruals basis. Cash basis accounting records income and expenses when cash is received or paid, while accruals basis accounting records income and expenses when they are earned or incurred, regardless of when the cash is received or paid.

Most companies in the UK use accruals basis accounting, as it provides a more accurate picture of a company’s financial position and performance.

Accruals and Prepayments

Companies must account for any income or expenses that have been earned or incurred but not yet received or paid. These are known as accruals and prepayments.

Accruals

Accruals are expenses that a company has incurred but has not yet paid for. For example, if a company has received goods or services but has not yet been invoiced, it will need to make an accrual for these expenses. This ensures that the expenses are included in the correct financial period, even if payment has not yet been made.

Accruals are typically recorded as a current liability in the balance sheet and as an expense in the profit and loss account. They are an important part of the accruals accounting method, which recognizes revenue and expenses when they are incurred, rather than when they are paid.

Prepayments

Prepayments are the opposite of accruals – they are expenses that a company has paid for in advance but has not yet used. For example, if a company pays for rent or insurance in advance, it will need to make a prepayment for these expenses. This ensures that the expenses are included in the correct financial period, even if they have not yet been used.

Prepayments are typically recorded as a current asset in the balance sheet and as an expense in the profit and loss account when they are used. They are an important part of the prepayments accounting method, which recognizes revenue and expenses when they are earned or incurred, rather than when they are received or paid.

Depreciation

Companies must also account for the depreciation of their fixed assets, such as property, plant, and equipment. Depreciation is the process of spreading the cost of these assets over their useful lives, and it can have a significant impact on a company’s financial statements.

Stock Valuation

Companies that hold stock must also value their stock at the end of the financial year. There are several methods of stock valuation, including first-in, first-out (FIFO), last-in, first-out (LIFO), and weighted average cost.

When are Statutory Accounts Due?

Statutory accounts must be filed with Companies House and HMRC within 9 months of the end of the financial year. The financial year is typically the 12 months leading up to the end of the month in which the company was incorporated.

For example, if a company was incorporated on 1st January 2022, its first financial year would run from 1st January 2022 to 31st December 2022, and its first set of statutory accounts would be due on or before 30th September 2023.

What are the Penalties for Late Filing?

If a company fails to file its statutory accounts on time, it can face penalties from the Companies House and HMRC. The penalties are as follows:

  • Up to one month late: £150
  • 1-3 months late: £375
  • 3-6 months late: £750
  • More than 6 months late: £1,500

In addition to these penalties, late filing can also damage a company’s reputation and credit rating.

How to File your Statutory Account?

Statutory accounts can be filed online using Companies House WebFiling or through commercial software packages. Companies House provides detailed guidance on how to file them, and it’s important to follow this guide carefully to avoid errors or omissions.

Can Statutory Accounts be Filed Online?

Yes, statutory accounts can be filed online using Companies House WebFiling or through commercial software packages. Online filing is quick and convenient, and it can also help to reduce errors and omissions.

What is the Difference Between Statutory Account and Annual Return?

Statutory accounts and annual returns are two different compliance requirements for UK companies. They are financial statements that provide a comprehensive picture of a company’s financial position and performance, while annual returns are a snapshot of a company’s basic information, such as its registered office address and director details.

Do Statutory Accounts Need to be Audited?

Most companies in the UK are not required to have their statutory accounts audited unless they meet certain criteria. For example, companies with a turnover of more than £10.2 million or assets worth more than £5.1 million are required to have an audit.

What is the Small Companies’ Regime?

The Small Companies’ Regime is a set of simplified accounting and reporting requirements for small companies. Small companies are defined as those with a turnover of less than £10.2 million. A balance sheet total of less than £5.1 million, and fewer than 50 employees.

Under the Small Companies’ Regime, small companies can prepare and file abbreviated accounts. Which provide less detailed information than full statutory accounts.

What are the Benefits of Filing Statutory Accounts?

Filing the accounts can provide a range of benefits for UK companies, including:

  • Compliance with legal requirements
  • Improved financial management and decision-making
  • Increased transparency and credibility with stakeholders
  • Reduced risk of penalties or fines for non-compliance

Don’t wait any longer to enhance your knowledge. Connect with one of our accountants and get your queries resolved.

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