The Companies Act 2006 provides the framework for company law in the UK. It makes accounting and financial reporting easier for small and medium-sized enterprises (SMEs), removing the requirement for both a company secretary and annual shareholder meetings, and clarifying rules on share capital.
The following legislation provides the legal basis for keeping accounts:
All businesses are legally obliged to keep adequate accounting records showing and explaining their day-to-day transactions, their income and expenditure and, where applicable, profit and loss.
Records must be kept for three years by private companies and for six years by Public Limited Companies (PLCs).
The accounting period is the financial year, also known as the accounting reference period (ARP). For a new business the financial year starts on the day of incorporation. The ARP ends on the accounting reference date (ARD) or within seven days either side of it.
Preparing and filing accounts
All companies, whether trading or not, must keep accounting records and all limited companies (and some unlimited companies) must submit accounts for each accounting period to Companies House.
Company directors are personally responsible for submitting yearly accounts and the company's annual return to the Registrar of Companies. Not all companies need to submit these to Companies House: there are different rules for small, medium-sized, unlisted and listed companies.
Generally, accounts must include:
- a profit and loss account (or income and expenditure account if the company is not trading for profit)
- a balance sheet signed by a director
- an auditor's report signed by the auditor (if appropriate)
- a directors' report signed by a director or the secretary of the company
- notes to the accounts
- group accounts (if appropriate)
Certain information may be omitted from the accounts of medium-sized and small (including very small and dormant) companies. These companies may further abbreviate the accounts they file at Companies House.
Very small companies and dormant companies may also be exempt from auditing.
All limited and public limited companies must send their accounts to the Registrar.
Unlimited companies need only deliver accounts to the Registrar if, during the period covered by the accounts, the company was:
- the company was a subsidiary undertaking or a parent of a limited undertaking;
- the company was a banking or insurance company (or the parent company of a banking or insurance company); or
- each of the company’s members was:
- a limited company;
- another unlimited company each of whose members was a limited company; or
- a Scottish partnership each of whose members was a limited company.
Some forms can be completed online using the Companies House WebFiling service. Failure to complete formalities correctly or on time may result in a penalty or other legal sanction.
Business Link provides a clear and concise introductory guide to business accounting and information on accounting responsibilities.