What Are Statutory Accounts?
All limited companies in the UK are obligated to present their financial statements, also referred to as “Annual Accounts” or “Year-end Accounts,” to Companies House within nine months of the completion of their fiscal year. In comparison to larger businesses, small companies’ financial statements are simpler to prepare.
What’s included in statutory accounts?
- A balance sheet
- A profit and loss statement
- Notes about the accounts
- A director’s report
- An accountants or auditor’s report
Your annual accounts must be submitted within nine months of your Accounting Reference Date after the first year.
For Example, if your company’s accounting period is from 1 November 2020 to 31 October 2021, the annual accounts must be filed no later than 31 July 2022, as in the case of Company XYZ Ltd.
What information do statutory accounts include?
The Statutory Accounts that Limited Companies in the UK prepare must be fully in accordance with either the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Practice (UK GAAP). Such accounts usually comprise the following components:
01. Profit & Loss (P&L) Account
The Profit & Loss (P&L) statement represents the company’s performance throughout the fiscal year, summarizing the income received and the expenses incurred. However, since each business is unique, the components of the P&L may vary.
In addition to the P&L, most companies must also file a Company Tax Return with HMRC annually, reporting their earnings, losses, loans, and other factors that may affect their tax obligations.
For instance, a retail business with several stores may prefer to have its income and expenses categorized by each location. In contrast, a construction business may want to evaluate the profitability of each project they undertake.
Thus, the P&L report prepared for management should be customized to suit the company’s nature, level of detail required, frequency, and layout.
02. Balance sheet
A Balance Sheet presents a snapshot of a company’s financial status at a particular moment in time. Along with its primary purpose of providing an overview of the company’s assets, liabilities, and equity, a Balance Sheet can also be useful in determining critical business ratios that help to identify risk areas.
Such ratios may include liquidity ratios, debtor days, inventory days, and others. By incorporating notes that indicate these key ratios, businesses can have a better understanding of their financial health and plan accordingly for any potential cash flow needs.
03. Key performance indicators (KPI's)
Notes to the accounts provide essential details that would be beneficial to any stakeholder of the business. Some common examples of such information are:
- Breakdown of Fixed Assets to show amounts purchased, sold and depreciated
- Related Party Transaction during the year
- Detail of some of its creditor or debtors e.g. money owed broken between the bank, taxman or a director
04. Directors report
Under the Companies Act 2006, larger companies must include a Director’s Report in their Annual accounts to enhance corporate transparency. This report outlines the company’s principal activities, significant events that occurred during the year, and their business impact.
The Director’s Report provides an opportunity for companies to provide more extensive details regarding their performance throughout the year, including any regulatory impacts or changes in the economic outlook. The report may also mention the company’s intention to pay dividends.
05. Auditors report
The Auditor’s Report is necessary only for companies that undergo an Audit, either as a Compulsory or Voluntary Audit, and is conducted by the company’s auditors. Following a thorough examination, the auditors will determine whether the financial statements accurately represent the business’s financial position.
Different types of statutory accounts
When preparing Full Accounts, companies must ensure that they include all the essential financial statements, including Profit and Loss, Balance Sheet, and Detailed Accounts. Additionally, Full Accounts must incorporate an Accountant’s Report and a Director’s Report, both of which provide crucial information about the company’s financial status and performance.
If your company meets the Small Business or micro-entity criteria, we can provide ‘Abridged accounts.’ These accounts feature a simplified Balance Sheet and a reduced number of notes to the accounts, which may be useful if you don’t wish to disclose detailed financial information like gross margins or annual profits. However, they do not include a Profit and Loss statement.
A company is considered dormant if it has had no “significant accounting transactions during the accounting period” or if it is a recently established company that has not yet commenced trading.
Criteria for small companies
If your company meets two of the following conditions, it is considered as a small business:
- You have a turnover less than £10.2 million
- You have up to £5.1 million on your balance sheet
- You have less than 50 employees
Criteria for Micro-Entities
Your company will be classified as a micro-entity if it satisfies two or more of the following conditions:
- You have a turnover lower than £632,000
- Your balance sheet shows a maximum of £316,000 or less
- You have 10 employees or less
As a micro-entity, you are not required to prepare complex accounts, and you can submit simplified Balance Sheets to Companies House. Micro-entities are eligible for the same exemptions that are granted to small companies.
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