The financial year consists of 12 months period, for which you have to prepare accounts.
Financial years are determined by reference to an accounting reference period. Legislation in the United Kingdom set the first accounting reference date as the last date in the month in which its first anniversary falls for e.g. If your company is incorporated on 08 August 2014 its first accounting period would be 08 August 2014 to 31 August 2015 and for the following years 1 September 2015 to 31 August (the calendar year will be 31 August for every year thereafter).
Changes to the accounting year end are possible based on restrictions.
The restrictions are as follows:
1) Cannot extent the first accounting period for more than 18 months unless the company is in administration.
2) Not extent more than once in 5 years (there are exceptions to these restrictions).
Preparation law and approval of accounts
Directors of the company are responsible for the preparation and submission of accounts for each financial year. Approval of accounts should be obtained from the Directors of the company before submission to Companies House.
There is no statutory requirement for private companies to lay their accounts before members at the general meeting.
Deadlines for delivery of accounts to the Companies House
All private limited and public companies must file their accounts at Companies House.
Company’s first accounts must be delivered to Companies House:
- Within 21 months from the date of incorporation for private companies.
- Within 18 months from the date of incorporation for public companies.
- 3 months from the accounting reference date, whichever is longer.
Normally accounts should be delivered to Companies House:
- 9 months from the accounting reference date for a private company.
- 6 months from the accounting reference date for a public company.
Extension of time to file accounts is available only if there is a special reason to do so which is outside the control of the company.
In case of failure of delivering accounts to Companies House on time then this is consider as a criminal offence. The law will impose penalties for late filing of accounts on the company. In case you do not submit accounts at all then the Registrar can strike it off the register and dissolve it, in this case all assets of the company including its bank account and property become the property of the crown.
Classification of companies
A company is considered as dormant if had no ‘significant accounting transactions’ during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records.
A company should not be considered as dormant if:
- Have a bank account from which it earns interest or incur bank charges.
- Paying legal or accountancy fees from the business bank account.
- Having any type of investment from which it derives dividends.
- Employing staff or payment of salaries to Directors.
- Buying and selling goods or services.
- Leasing or buying property.
- Receiving of dividends.
A dormant company is exempt from having an audit for that financial year if:
- It has been dormant since incorporation.
- It has been dormant since the end of the previous financial year and it meets the following criteria:
– Entitled to prepare individual accounts in accordance with small company regime.
– Not required to prepare group accounts.
– It is qualified as a small company in relation to that year.
Exemptions available for dormant companies:
- Audit exemption subject to conditions.
- Deliver an abbreviated balance sheet and notes to the Companies House.
Within the small company classification there is a subset called a micro-entity, which is applicable to very small companies.
In order for a company to qualify as a small company must meet at least two of the following conditions:
- Annual turnover must be no more than £6.5 million.
- The balance sheet total must be no more than £3.26 million.
- The average number of employees must be no more than 50.
There are companies that cannot prepare and submit small accounts.
Exemptions available for small companies:
- Simpler, less detailed accounts than those required by large and medium companies.
- Deliver only an abbreviated balance sheet (do not have to deliver copy of the Director’s report or profit and loss account).
- Audit exemption subject to conditions.