Only limited companies have to prepare accounts and file them with the Registrar of Companies. It is the directors' responsibility to file accounts, failure to do so is breaking the law. On conviction, a director could end up with a criminal record and a fine of up to £5,000 for each offence. There are also late filing penalties.
The Companies Act 1985 laid down standard balance sheet and profit and loss account formats, and various later Companies Acts have further modified these. There are four optional layouts for the profit and loss account (two horizontal and two vertical) and two for the balance sheet (one horizontal and one vertical).
All companies must prepare full accounts to present to shareholders but small and medium-sized firms can send abbreviated accounts to the Registrar of Companies. In the UK, to qualify as a small company you must satisfy two of the following three tests: annual turnover of less than £2.8 million, assets of less than £1.4 million and fewer than 50 employees. As well as being allowed to file abridged accounts, small companies are exempt from having an audit. Medium-sized companies must satisfy two of the following three tests: annual turnover below £11.2 million, assets less than £5.6 million and employ fewer than 250 people.
Small companies must deliver to the registrar:
- An abbreviated balance sheet containing the main headings of assets and liabilities
- Selected notes to the accounts explaining accounting policy, share capital, particulars of creditors payable in more than five years and the basis of any foreign currency transactions
- A special auditor's report, unless exempt
For medium-sized companies, the accounts must contain:
- A full balance-sheet that lists, by account category, all the assets and liabilities of the company
- An abbreviated profit-and-loss account containing only the main headings of income and expenditure, but providing no detail
- Notes to the accounts explaining accounting policy, share capital, particulars of creditors payable in more than five years and the basis of any foreign currency transactions
- A director's report summarising the company's position
- A special auditor's report confirming that the accounts are a “true and fair” representation of the company's financial state on that date
The rules of disclosure for the annual filing requirements are complex. If you are in any doubt as to what you should provide, you should take professional advice. Where the company takes advantage of the regulations allowing abbreviated accounts to be filed, it must have a special auditor's report confirming that all the exemptions have been satisfied. The directors must also make a statement at the foot of the balance sheet saying they have relied upon the exemptions.