This is an update on limited Company year-end accounts, just to remind you how it all works…
What are they? Every limited Company needs to submit a set of financial statements to Companies House, and a corporation tax return to HMRC. Both need to be submitted annually. These are usually prepared together, and we refer to both as your year-end accounts.
1) Financial statements
These include the Company’s profit & loss (P&L) for the year; and the balance sheet at the year end. The P&L sets out the income and expenses, and the resulting net profit or loss. The balance sheet is a summary of the assets (cash, debtors, equipment owned), and the liabilities (amounts owed to vendors, loans etc).T
here are two options or ‘financial reporting standards’ the accounts can be prepared under:
a) FRS105 – This is the simplest set of accounts, with the minimal disclosure requirements. Your business can prepare accounts using the FRS105 template if your business meets at least two of the below:
- Turnover below £632k
- Total assets less than £316k
- Employees of no more than 10
b) FRS102 – If you are above the FRS105 threshold you have to prepare these. A more detailed set of accounts with more disclosure requirements. You can choose to prepare your accounts under FRS102 even if your Company is below the size threshold.
Fileted accounts – You may have heard this term. All financial statements include a P&L and a balance sheet. When you submit to Companies House you can exclude the P&L, this is referred to as a ‘fileted’ set of accounts. We will always ask you to sign the full set, but then submit the fileted shorter set to Companies House. Most small business owners look to disclose the minimum information to Companies House. It’s therefore pretty tricky to assess financial performance for most small businesses purely from the accounts available on Companies House.
Timelines – You need to file your accounts with Companies House 9 months after your Company year end. You can see these deadlines if you search for your Company name on the Companies House website – here. If you have a valid reason, you may be able to extend that deadline (usually for a maximum of 3 months).
Penalties if you submit late – The penalty is £150 if the accounts are submitted late for the first time. This fine will increase if still not submitted within 3 months, of if submitted late multiple times within 5 years.
2) Corporation tax return
Submitted to HMRC and dictates the amount of corporation tax your Company needs to pay. The tax rate used to be a flat rate of 19% on the Company taxable profits; this now increases as your taxable profits increase above £50k. More information on how that works in our blog – here.
Non deductible expenses – There are some business expenses which can’t be included in your corporation tax return. These are considered ‘non deductible expenses’. Some examples: depreciation on assets/ equipment (you usually get the full tax benefit the year you buy the asset), client entertaining expenses, fines or penalties, and some legal settlements. These expenses are added back to increase the Company’s taxable profit.
What if the business makes a loss – A business can carry forward losses, and set these off against future profits year on year. E.G. a business makes a loss of £100k in each of it’s first three years. It will have a £300k loss to carry forward. If it then turns profitable, it will not pay any tax on the first £300k of profits, which may span across multiple future periods.
CT600 – This is the name for the actual corporation tax return submitted to HMRC.
Why do I have two tax returns? a CT600 return can be for a maximum period of 12 months. If you incorporated a limited Company mid-month, the first accounting period will be 12.5 months long. This would be included in a single set of financial statements, but would need two CT600 returns to cover the 12 month and the 0.5 month periods. All accounting periods would be exactly 1 year after the first year, making life simpler!
Timelines – Slight quirk here. You actually have 12 months after your Company year end to submit your corporation tax return, but you have 9 months and 1 day to make the tax payment. It’s therefore sensible to submit both financial statements, and the corporation tax return within the 9 months.
Penalties if you submit late – The penalty is £100 if the CT600 is submitted late. There is an additional penalty of £100 if still not submitted within 3 months. Penalties will increase after that.