What Legal Obligations Do I Have to Maintain Company Accounts in the UK?

For directors of a limited company, you have a legal duty to maintain your company’s accounts and file these with Companies House every year. Failure to accurately maintain your company’s accounts can lead to serious penalties. This article will summarise your obligations to maintain and report company accounts.

Small Companies

The law is quite specific as to what qualifies as a small company. To determine whether you fall within the classification, consider the following features:

• company turnover – your company’s total income, including sales and other activities, is not more than £10.2m a year; 
• balance sheet – your company’s balance sheet (the value of its assets less the amount of its financial obligations) is £5.1m or less; and 
• company employees – you employ less than 50 people.

In practice, if two out of three apply, your company will likely qualify as a small company. 

Understanding Your Obligations 

Fair and True 

As a director, you must only approve accounting reports that provide a fair and true picture of the company’s accounts. 

You should note that you cannot delegate this duty. Therefore, if your accountant negligently prepares your accounts, you could still be held liable because you had an obligation to ensure that the accounts were nonetheless “fair and true”. However, the law is generally unlikely to hold you liable for any resultant damages if you demonstrated due care in selecting a qualified accountant. 

Likewise, you owe the duty to prepare fair and true accounts to two parties:

• your company’s shareholders; and 
• Companies House.

Shareholder Obligations 

Unless your shareholders unanimously agree otherwise, you must prepare full accounts for your shareholders. Full accounts include:

• a balance sheet; 
• a profit and loss statement; 
• notes to the account; 
• the directors’ report; and 
• an audited account unless exempt (see below). 

Your balance sheet must contain a statement affirming that the accounts were prepared according to the small companies regime. You must prominently display this statement. 

Your shareholders can unanimously agree that the company prepare abridged accounts (see below). 

You should also review your company’s constitution, particularly its articles of association. You want to ensure that there are no express obligations to prepare and file the accounts in a particular way. 

Companies House Filing

After you have prepared your accounts, you must deliver the balance sheet to the Companies House Registrar. Notably, your balance sheet must be accurate up to the last day of the financial year. 

Unless you express otherwise, you should also send your profit and loss accounts and the directors’ report. However, you can opt-out of this requirement in what is known as “filleting your accounts”. 

Additionally, you must file your company accounts within nine months of the last day of the accounting period. For many companies, the accounting period coincides with the anniversary of the date of the company’s incorporation. 

Abridged Accounts

If the shareholders unanimously agree, the company can file abridged accounts. These accounts contain less information. Specifically:

1. The balance sheet need only include summary line items. For example, instead of providing breakdowns of each current and long-term debtor (trade, debt, etc.), the company can simply aggregate the amounts. 
2. The profit and loss statement need only disclose the gross profit or loss rather than the turnover and cost of sales. 
3. The accounts do not have to provide as many explanatory notes. 

Audit Exemption 

Small companies can choose not to prepare and file audited accounts. The benefit is that this costs significantly less. The downside is that lenders and other key stakeholders may be less inclined to transact with a business that does not have independently audited accounts. 

Micro-Entities 

The law recognises certain sufficiently small companies as “micro-entities”. Notably, the filing obligations for micro-entities are less demanding. 

In general, a company will be a micro-entity where two of the three following conditions apply:

• yearly turnover is £632,000 or less; 
• balance sheet total is not more than £316,000; or
• the company does not employ more than ten people. 

Further, micro-entities must prepare for their shareholders:

• an abridged balance sheet;
• an abridged profit and loss statement; and 
• an auditors report unless self-exempt. 

You must provide the accounts to Companies House.

Key Takeaways

Directors have several obligations, including ensuring their companies’ accounts are prepared for shareholders and filed with Companies House. These accounts must give a “fair and true” value of the company’s affairs. This duty is non-delegable. Therefore, directors should take care to ensure a qualified professional is preparing the company’s accounts. Small companies do not have to disclose as much information on their accounts. Some small companies may qualify as micro-entities, which entitle them to fewer preparation requirements. 

If you need further guidance, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today at 0808 196 8584 or visit our membership page.

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