Directors of limited companies in the UK have to prepare and issue company accounts to the company’s shareholders (usually annually). The format of company accounts, and information to be contained therein, is governed by the Companies Act 2006 and various accounting standards issued by the Accounting Standards Board (ASB). Companies have to file accounts on public record with Companies House.
The vast majority of registered companies in the UK are “small companies” (as defined by the Companies Act 2006). Small companies are usually companies with an annual turnover of less than £6.5m and assets of less than £3.26m (there are exceptions to this which will not be detailed in this article). Small companies are entitled to prepare company accounts in accordance with the Financial Reporting Standard for Smaller Entities (issued by the ASB) and the “small companies’ regime” (Companies Act 2006) and these companies are usually (not always) exempt from the requirement to have the company accounts audited.
The regime for small companies is less onerous than the regime for larger companies. Small company accounts do not need to include as much information as those for larger companies; but small company accounts are still subject to scrutiny by Companies House and 3rd parties such as HMRC, banks, suppliers and customers.
Accounts rejected by Companies House – common issues
Companies House currently reject over 11% of company accounts which are filed. Surprisingly, the majority of rejections are due to simple errors including:
· Name of balance sheet signatory missing.
· Signature of balance sheet signatory omitted.
· Incorrect audit exemption statements on the face of the balance sheet.
Rejected accounts will be returned to the company to be re-filed and an automatic late filing penalty will be issued if the correct accounts are not returned before the statutory filing deadline.
Common failings with disclosures in company accounts
Some of the more frequent errors regarding information in company accounts are noted below:
a. The company’s controlling party.
Where the company is controlled by another party (e.g. the majority shareholder), then the name of this party must be disclosed in the accounts.
This disclosure is sometimes omitted completely or the controlling party disclosed is an intermediate controlling party instead of the ultimate controlling party.
b. Charitable donations.
It is a legal requirement of the Companies Act 2006 that if the company makes total charitable donations in excess of £2,000 in the accounting period, then the report of the directors must disclose details of the purpose of the donation and a statement of the amount given.
These are regularly omitted if individual donations are below £2,000 which is incorrect as the requirement is in relation to “aggregate donations” above £2,000.
c. Missing disclosures.
Certain disclosures are regularly omitted completely including:
· Details of security provided to creditors (eg charge/debenture over company assets).
· Operating lease commitments (e.g. property rental commitments).
· Directors’ loans and other transactions with directors and related parties.
· Material accounting policies (e.g. turnover or depreciation policy).
d. Too much information.
Changes in legislation or accounting standards sometimes remove the requirement to disclose certain information. However, information not required any longer which is still commonly disclosed includes:
· Directors’ interests in the shares of a company.
· The rate of corporation tax applicable to the company.
Make sure you get them right!
The directors of the company are responsible for ensuring that company accounts comply with the relevant legislation and accounting standards.
Perrys have considerable expertise in acting on behalf of companies and their directors to ensure that their responsibilities in this area are met and that late filing penalties arising from rejected accounts are avoided.« Back