Statutory accounts are a key part of a company’s financial year. They’re a legal requirement, and give you an overview of business performance. Statutory accounts are also known as financial statements or year-end accounts, and can include things like your profit and loss account and balance sheet.
There are more than four million registered companies in the UK and their statutory accounts responsibilities will vary depending on size, turnover and staff. In this blog, we’ll dig into the contents of statutory accounts, and see how your company size affects what you should submit.
So, what are statutory accounts, and what goes into them?
What do statutory accounts include?
Some of the things that statutory accounts can include are your:
- Balance sheet
- Profit and loss account
- Cashflow statement
- Notes to the accounts
- Directors’ report
- Auditors’ report
You may also include various pieces of company information and crucial company performance figures.
The statutory accounts are typically drawn up by directors and accountants, then filed to Companies House along with various disclosures. They are an essential piece of UK accounting practice following Financial Reporting Standards.
So, what exactly goes into them?
Directors’ report
The directors’ report gives a very brief overview of financial performance over the past year. Depending on the size of your company, submitting this could be a requirement.
Your directors’ report will detail the names of the company’s directors during that year. It will also mention their responsibilities within the organisation. Then, it will describe your company’s business activities including any performance metrics and dividends paid.
A completed directors’ report will include a director’s signature along with confirmation of board approval.
Balance sheet
Next, you may include a balance sheet in your statutory accounts. Simply, a balance sheet gives an overview of your business’s assets, liabilities and debt up to the last day of the financial year. A balance sheet will typically compare your current set of accounts with the previous year’s performance, detailing any explanations that directors or accountants felt were necessary.
Typical metrics to include on a balance sheet might include:
- Fixed, current and tangible assets
- Net assets
- Debtors
- Cash at bank and in hand
- Creditors falling due within one year
- Creditors falling due after more than one year
- Total assets less current liabilities
- Capital and reserves
Many companies will include further numbers, depending on their requirements. The board should approve the balance sheet before submission, with a director’s signature in place.
Profit and loss statement
You might also include a profit and loss account. This will show your financial performance over the last year, giving an overview of business financial health. You can include:
- Turnover
- Cost of sales
- Gross profit
- Tax details
- Financial year net profit.
Some companies go into deeper profit, turnover or cost details when appropriate.
Cashflow
Some companies mainly larger ones must include a cashflow statement in their statutory accounts. Even when not required, some companies might choose to do so.
It is used to see how money comes into the business, and how it is spent ultimately showing how healthy a company’s cashflow status is at any one time. However, it does not account for future changes, so it might not be best used in isolation.
Auditors’ report
Statutory accounts might also include auditors’ reports. These are only applicable for larger companies, or companies that choose to be audited. The audit will take place from an outside licenced body that scrutinises a company’s financial statements to certify they are compliant and error-free.
Company details and notes
Finally, you should provide some introductory company information. This might include registration details, addresses, and information on accountants and directors. You can also include any notes that provide clarity and context where numbers do not tell the whole story.
Who has to submit statutory accounts?
Details to include vary when preparing statutory accounts, mostly due to company type and size. The following must submit statutory accounts to Companies House after each reporting period:
- Private limited companies
- Public limited companies
- Limited liability partnerships.
However, depending on various metrics, you may fall into the bracket of small business, micro-entity, or dormant. If so, requirements are a little less complicated.
Statutory accounts for small businesses
A small business can submit shorter statutory accounts to Companies House. These are known as abridged accounts, and have simplified requirements.
Currently, a small company is defined by Companies House as any company that meets two or more of the following:
- A turnover of £10.2 million or less
- £5.1 million or less on its balance sheet
- 50 employees or less.
A small business does not need to be audited but may choose to. They also are not required to include a directors’ report or a profit and loss account.
Micro-entities and statutory accounts
Next are micro-entities. HMRC currently defines a micro-entity as meeting at least two of the following requirements:
- a turnover of £632,000 or less
- £316,000 or less on its balance sheet
- 10 employees or less.
The requirements for micro-entities are even simpler. They can prepare straightforward statutory accounts and enjoy the same exemptions as small businesses. When submitting, they can also send a less-complex balance sheet to Companies House.
Dormant company accounts
HMRC currently defines a company as dormant if it’s had no significant transactions’ in the latest accounting period. If in doubt, check with HMRC or ask yourself: Do I need an accountant?
When should I file statutory accounts?
A company usually submits their statutory accounts every 12 months. The dates you should file your statutory accounts can vary depending on company incorporation. As a general rule:
- New companies can file on the anniversary of the last day in the month the company was incorporated
- Existing companies can file on the anniversary of the day after the previous financial year ended.
Companies House should receive the filings no more than nine months after these dates, or six months for public companies.
Preparing statutory accounts
So, now you know what information should go into statutory reports, you can begin to collect the data. When preparing statutory accounts, you’ll get a good overview of all your financial activity over the year.
Of course, you need to send this to Companies House, but it’s also useful for other things, like guiding decision-making, checking the position of the company, and seeing your tax liabilities.
When complete, you should send copies of your statutory accounts to:
- Shareholders of the company
- Companies House and HM Revenue and Customs (HMRC)
- Anyone who attends the company’s general meetings.
What is the Difference Between Statutory Accounts and Management Accounts?
A common confusion is that statutory accounts are the same as management accounts. They can contain some similar information, but there are some key differences:
- Management accounts are not a legal requirement unlike statutory accounts.
- Management accounts are a very useful tool for understanding the financial position of the company at regular intervals. Many types of businesses create them monthly or quarterly, whereas statutory accounts are annual. They can help you plan for future activity and potentially how to pay less tax.
- Statutory accounts must follow the Companies House required format, whereas management accounts are more flexible.
- Management accounts are generally more useful for planning the future finances of a company.
Getting annual accounts right
So, what are statutory accounts? They’re a legally required report for most companies, submitted annually. They should contain some key information although the requirements are less strict for smaller, micro and dormant companies. If you are in any doubt about your statutory accounts, speak to an expert for advice.
