Preparing and Submitting Annual Accounts
Annual Accounts are one of the key responsibilities of company directors. And yet in practice SME directors are treat this process as a "box-ticking exercise" and limit their involvement with just signing the account set.
There are various requirements that need to be met, and different options to choose from to file your accounts in the right way. Preparing your annual accounts so that they are ready to submit takes time, and you must file them within 9 months after your company's financial year ends. It's important for SMEs to ensure they follow the requirements and get their accounts filed on time and accurately each year. It's possible to do this on your own, but much easier with the help of an accountant.
Below I describe common blunders made by SME directors regarding annual accounts process.
Common Blunders
1. Treating annual accounts process as a "box-ticking" exercise. The Companies Act 2006 specifies responsibility of the board of directors to approve, and a designated director sign the annual accounts. Its a criminal offence to sign misleading, false or deceptive accounts and directors need to be mindful of this. Making sure there are accurate controls within the company, choosing right professional to assist with preparation and throughout review of prepared set of accounts are all important steps to address this.
2. Choosing a wrong accountant - there are plenty of accountants offering this service. Some directors trust only large accounting companies, hoping that they are more likely to provide higher quality services as they will follow internal control process to make sure the yearly accounts. This is often not the case, as the accounts are being prepared by junior personnel anyway. While senior accountant will usually review them, they are likely to be busy with other matters or priorities larger clients. As a result, SME's often get less qualified people preparing the accounts. the At the same time, they are usually slow and they tend to not to know your business well which may lead to missed opportunities. SME directors therefore should be mindful of this and allocate appropriate time to selecting and reviewing the quality of prepared accounts.
3. Use accountants only for the annual account process - One thing to keep in mind is that by the time the financial year is over and it's time to submit your accounts, it's too late to get accountants involved. You should really use an accounting service during the year to help with making important financial and tax decisions. Accountants who are working with you through the year are more involved with the business and can give better advice, as opposed to those who only complete a one-off job of completing and filing your tax return.
4. Differences between annual accounts and management accounts - Another thing to consider is whether the annual accounts are being prepared to match the business's management reports. When accountants prepare them to use their own templates, this can create a mismatch that leads to confusion for both internal and external parties. So it's important that full accounts and management accounts match, and ideally they would be completed by the same accountants.
Types of Accounts
There are different types of accounts to be aware of if you own a small company. You might be able to send simpler abridged accounts to Companies House if your company counts as a small company. Small companies and micro-entities still need to send statutory accounts to members and to HMRC with their tax returns. A dormant company has had no significant transactions in the financial year and doesn't need to be audited if it counts as small.
Small company accounts must meet two of the following criteria:
A turnover of £10.2 million or less
£5.1 million or less on its balance sheet
50 employees or fewer
A small company can use its exemption so the company doesn't need to be audited. You can also choose whether or not to send your company's profit and loss report and director's report to Companies House, and send abridged accounts to Companies House.
A micro-entity has two of the following:
A turnover of £632,000 or less
£316,000 or less on the balance sheet
10 employees or fewer
Micro-entities can prepare simpler accounts, send only your balance sheet with less information to Companies House, and benefit from some exemptions.
What to include in your accounts depends on the type of business. Abridged accounts are less detailed and don't require the net profit to be included. They also don't require a full breakdown of fixed assets, creditors, and debtors.
Understanding which type of accounts you need to send, how to send them, and when to send them can be tricky. Your accountant or tax advisor can help you and even file your accounts for you.
Annual accounts are usually prepared in parallel with Corporation Tax (CT600). Check out our article Completing Your Corporation Tax Return.
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