Statutory accounts definition
Statutory accounts (also known as annual accounts) are financial statements that show how a company made its money and spent it over the year.
Statutory accounts consist of the statement of financial position (also known as the balance sheet), which shows what assets a company has and how much they’re worth. The statement of income (known simply as the ‘income statement’) shows how much money a company made over that period by selling goods or services and the statement of changes in equity, which reports changes in a company’s equity.
Companies must file their statutory accounts with Companies House within nine months after an accounting period. Companies must also file statutory accounts with HM Revenue and Customs (HMRC) for corporation tax purposes. Late filing usually attracts late filing penalties with both Companies House and HMRC.
Key components of statutory accounts
The key component of statutory accounts are as follows:
- Directors’ report
A directors’ report is a requirement of UK Company law, which requires the board of directors to prepare a report detailing the state of the company and its conformity with a financial reporting standard along with an insight into the company’s financial condition.
The directors’ report may also contain information about how well the company has performed over the year and how thriving companies managed it. The directors may choose to set out some recommendations in the directors’ report for future developments within the business. The directors’ report can also include information on any changes to policies or strategies that have occurred throughout the financial year under review and provide more detail into certain aspects of the company’s performance.
All the company’s directors must also sign a company’s directors’ report to ensure that they are accountable for its contents.
- Balance sheet (statement of financial position)
The balance sheet is one of the most critical components of statutory accounts. It shows a company’s assets, liabilities, and shareholders’ equity at a given point in time.
The balance sheet gives stakeholders an idea of the company’s financial position, including an insight into the operational efficiency and insolvency of a company. Companies can also use the balance sheet to calculate various financial ratios to understand the company’s health better. A balance sheet helps investors make informed choices before investing in the company.
- Income statement
An income statement, also known as a profit and loss statement (P&L), is a financial statement that identifies how much money a company has earned over a specific period. The income statement includes revenues, expenses, and profits or losses.
- The auditors’ report
The auditors’ report provides an opinion to key stakeholders whether the statutory accounts give an accurate and fair view of the company and its financial affairs.
- Notes to the accounts
Notes to the accounts provide further insight into some of the financial information on the profit and loss account, balance sheet and cash flow statements. For example, a short-term creditor note would identify detailed information, including trade creditors, tax liabilities, PAYE liabilities and overdrafts. Notes to the accounts also assist the reader in dissecting high-level information into further granularity.
The ultimate purpose of having notes to the accounts is to aid stakeholder understanding of the financial information.
Statutory accounts can be presented in the following formats:
- Abridged accounts
Abridged accounts are a type of statutory accounts that is abbreviated, which means that it is shorter than a standard statutory account. Smaller companies mainly prepare this type of statutory account or have more precise accounting needs.
To file abridged accounts, a company must meet the following criteria:
- turnover of a company is not more than £10.2 million.
- balance sheet totals are not greater than £5.1 million.
- the number of employees is not more than 50.
It can be helpful for small companies because it allows them to provide critical financial information more concisely. Abridged accounts must still adhere to all the requirements of a statutory account, so they must be accurate and reliable.
- Micro-entities accounts
Micro-entity accounts provide information about the financial position and performance of businesses that meet the size criteria set by the government. These companies may be exempt from preparing certain statements, such as a directors’ report or statement of changes in equity.
To file micro-entity accounts, a company must meet the following criteria:
- turnover is not more than £632,000.
- balance sheet totals are not more than £316,000.
- the number of employees is not greater than 10.
- Dormant accounts
A company is called dormant by Companies House if a company has no ‘significant’ transactions in the financial year. Significant transactions do not include:
- filing fees paid to Companies House.
- penalties for late filing of accounts.
- money paid for shares when the company was incorporated.
If this is the case, directors must file dormant company accounts.
Difference between statutory accounts and management accounts
Management accounts contain specific information that could be beneficial for business needs. Management accounts allow the top executives of a business to make decisions based on the business’s financials.
For example, a report clarifies a decline in sales or an incline in certain expenses.
Management accounts are used for internal decision-making and are not usually distributed to shareholders unless requested. Many companies establish or prepare management accounts each quarter, monthly, or even every week to ensure that their financial controls are strictly monitored.
Understanding the difference between management and statutory accounts can help companies understand how to utilise these accounts to enhance financial management and ensure future growth:
- Statutory accounts are mandatory reports requested by HMRC or Companies House. Management accounts are not required but recommended by top management.
- Statutory accounts provide an overview of the financial position. Management accounts are more customised and specific to the company’s financial operations.
- Companies only prepare statutory accounts at the end of the financial year. Whereas companies prepare management accounts at any time when required by the company.
- Statutory accounts give an overview of all financials, while management accounts provide details. From an accounting perspective, statutory accounts permit the companies to understand the result of their work since all information is broken down to show financial transactions made by the company for the year. Management accounts provide greater concentration and more significant analysis of the company.
- Management accounts offer granular levels of performance for each business unit.
- Management accounts are mostly used to boost the performance of an organisation.
- The purpose of the statutory accounts is to provide information about the financial position, whereas management accounts provide information about operational performance within an organisation.
- Management accounts use key performance indicators (KPIs), enabling managers to use KPIs for various purposes such as improving their business plan, financial strategy, or marketing strategy; this could aid their forecasting process. Statutory accounts use key strategic ratios, which do not include all possible quantitative measures that can be applied to a business but rather included to enhance understanding of any changes in their financial position. Key strategic ratios or financial ratios are used to compare the changes in a company’s financial position over time, whereas key performance indicators (KPIs) are designed to show whether an organisation’s objectives are being met.
Deadline and Penalty
You must file your annual accounts with Companies House within 9 months of the end date for your company’s financial year. This ensures compliance and prevents any fines or other penalties from arising.
As you deliver company accounts 9 months after your ARD (Accounting Reference Date), this means your first company accounts are not due until 21 months after the date you registered with Companies House.
|First accounts to file with Companies House||21 months from the date that you signed up with Companies House|
|Filing annual financial statements/accounts with Companies House||9 months after your company’s financial year ends|
|Paying Corporation Tax||9 months following the date your ‘accounting period’ for Corporation Tax ends|
|Paying a Company Tax Return||12 months after your Corporation Tax period ends|
However, Failure to file statutory accounts on time will lead to fines associated with each month or part-month statutory accounts. Fines start at £150 per month for early filing and rise to £1500 per month for late filing.
If you fail to submit your statutory accounts within 12 months of the accounting reference date, then Companies House may strike off and dissolve your company automatically.
There will be penalties if you do not file all your accounts with Companies House.
|Time after the deadline||Penalty|
|No more than One month||£150|
|One to Three months||£375|
|Three to Six months||£750|
|More than Six months||£1,500|
What Naseems accountants can offer
We pride ourselves on getting an accurate understanding of your business needs and the sector in which you operate. We will prepare all necessary accounts so that tax planning opportunities are at their disposal for as long as possible.
We’re experts at highlighting strengths within any budget. When there are problems needing attention, our services never fail to develop creative ideas on how best to fix them or suggest new strategies altogether because of the experience gained over the years.
Our taxation and accountancy services will provide your company with more reliable information to meet the demands of any market environment while reducing time and cost for preparing year-end accounts.
Book your free consultation and get £100 off on your first-year accounts.