How to prepare year-end accounts for limited companies in the UK

If you’re running a limited company, completing and filing your year end accounts is one of the basic legal requirements you’ll need to plan for.

By carrying out this process, you’ll not only ensure that your business is paying the right amount of tax and compliant with its legal obligations but provide current shareholders and potential future investors with accurate data about your business' financial health.

Though most UK merchants will delegate filing their year end accounts to an accountant or financial advisor, it’s still important to build a solid understanding of what the process involves, and your role in making it as smooth as possible.

Here’s a complete guide to preparing your year end accounts as a limited company.

The basics of year end accounts for limited companies

Aside from being required to keep your business operating legally, your year end accounts can be a useful tool for regularly assessing your financial health and developing your business growth strategy.

It can also be important for communicating important information to outside parties such as potential private investors or financial advisors.

Some key elements that will be involved in preparing your year end accounts include:

Balance sheet

A financial statement that provides an overview of your business' financial position including your assets, liabilities, and the equity of shareholders.

P&L (profit and loss) account

A summary of your business' revenues, operating costs, and expenses over the previous year.

Notes to the accounts

A document which provides any additional information needed to contextualise the financial analysis in the balance sheet and P&L account.

Fiscal year vs calendar year vs tax year

When you’re trying to familiarise yourself with the year end accounts process, it’s important not to confuse the fiscal year with the calendar year, or the government tax year.

The calendar year 

This is the year as it appears on all calendars, running from January 1st to December 31st. 

The tax year 

The tax year from April 6th to the following April 5th across 2 calendar years, with the start of the year marking the introduction of new fiscal policies set by the government, for example, a new rate of corporation tax.

A fiscal year (also known as a financial year)

A 12-month period used for accounting and tax filing.

As a limited company, you can alter the dates of your fiscal year. Some business owners choose a period that runs from March 31st to the following March 30th. This allows you to use a single corporation tax rate for the whole year, and simplifies the relevant calculations.

Legal requirements for year end accounting

In the UK, registered limited companies are required to maintain year end accounts and submit them to HMRC at the end of each fiscal year.

Aside from sending your accounts to HMRC as part of your company tax return, the government specifies that you should share copies of your company end of year accounts with:

• All your company’s shareholders.

• People who attend your company’s general meetings.

• Companies House.

If you’re operating as an unincorporated business, for example a sole trader or partnership, you’re under no legal obligation to prepare or submit year end accounts.

Instead, you’ll only need to be concerned with reporting your business' profits earned in each tax year and paying income tax on this through a self assessment tax return.

Common year end dates for UK businesses

By default, HMRC will set your account year end closing date as your business' date of incorporation.

However, as mentioned previously, you have the flexibility to change your business' fiscal year based on variables such as your business cycle and internal organisation preferences.

Many limited companies choose to set their year end as the 31st of March for a few key reasons:

• It aligns with the UK tax year, making it easier to transition from your accounting work to filing taxes.

• It’s the end of the calendar year’s first quarter, which allows you to align your quarterly reporting with tackling your year end accounts.

• As many other PLCs mark March 31st as the end of their financial year, using this date helps to align the cycle of published earnings and perform competitor analysis.

Changing your accounting year end

Some limited company merchants may find themselves in situations where they want to make accounting year end adjustments, for example to align their reporting period with the tax year or plan to tackle their accounts in a slow business period.

However, there are rules set by HMRC you’ll need to abide by when changing your business' accounting period.

Some rules to bear in mind include:

• You can only change accounting year end for your current financial year, or the year immediately before it.

• Changing your financial year will also change the corresponding deadlines for filing your year end accounts.

• If you’re extending your reporting period, you can only do this up to a maximum of 18 months, and once every 5 years.

Are end of year accounts figures exclusive of VAT?

Because VAT isn’t classed as a business' actual expenses and income, your year end accounts will be exclusive of VAT. 

What should be included in your financial year end accounts?

You’ll be required to prepare and submit several calculations and documents as part of your year end accounts.

Here’s a closer look at each element you’ll need to prepare as part of your year end accounts.

Accounting records

Your accounting year end records cover various sets of financial data specified by HMRC, including:

• The money your business has earned and spent in its accounting period, including any small business grants you’ve received when starting up.

• Details of the assets your business owns, such as buildings or inventory.

• A record of all the debts owed by your business, and owed to your business.

• The stock your company owns at the end of its reporting period.

• The stocktaking (calculation) used to arrive at this stock figure.

• Records of all the goods you’ve bought or sold.

• The entities you bought your goods from and sold them to (note that this isn’t a requirement for retail businesses).

Company records

Your company records are a category of non-fiscal documentation, relating to the structure of your business, the people involved in running it, and structural changes that have been made at the business.

These records must include:

• Details of your business' shareholders, directors, and company secretaries.

• The results of votes and resolutions made by the shareholders.

• Debentures, which are promises made by your business to repay business loans by a specific date.

• Indemnities, which are obligations your business has to compensate potential financial losses for investors.

• Records of transactions when someone buys shares in your business.

• Records of any mortgages or other loans which use the business’s assets as collateral.

Company tax return

Your company tax return (HMRC form CT600) is the document you’ll use to report your business' financial activities throughout its financial year to the government.

HMRC will then use this information to calculate the amount of corporation tax you owe, payable at the end of the tax year.

Some of the details you’ll need to organise and enter for this part of your year end accounts include:

• Your turnover.

• Your allowable expenses and tax deductions.

• Your profit.

• Any relevant tax allowances you’d like to use.

Annual or statutory accounts

Your annual accounts (sometimes referred to as statutory accounts) are the documents that make up your company tax return.

These accounts are intended to be a summary of your business' financial activity rather than a detailed breakdown of all your transactions and are organised so that HMRC can make accurate calculations about your business' tax obligations.

Your annual accounts must contain:

• A balance sheet showing the value of all your business' assets.

• A profit and loss account (P&L statement) showing your total sales, running costs, and the profit or loss you’ve made in the financial year.

• Notes about the accounts, giving any necessary context or additional information regarding the financial data you’re submitting.

• A director’s report, which gives an overview of the financial statements prepared by the directors of a business, and is usually addressed to shareholders. Note that if your business is small enough to meet HMRC’s definition of a micro entity, you won’t need to submit this.

Abridged accounts

Abridged accounts are a simplified version of the statutory accounts you can choose to submit to Companies House as a limited company business owner.

They’re available to businesses that qualify as small companies or micro-entities, which are classifications based on factors like your annual turnover and how many employees you have.

It’s important to note that you can only submit abridged accounts if everyone at your business (directors and shareholders) agrees to it.

Sending abridged accounts means less information about your company will be publicly available from Companies House.

Choosing to prepare and submit abridged accounts makes the reporting process easier. However, the management at your business may still want to prepare all the standard reports required for larger companies to get a more detailed understanding of the company’s financial health.

Statutory accounts for small companies

If your business qualifies as a small company, you can submit your year end accounts without them being audited by a qualified accountant, which is a requirement for larger businesses.

If sending abridged accounts, you’ll also have the option not to share a profit and loss account or a director’s report to Companies House.

Statutory accounts for micro-entities

If your business is classed as a micro entity, you’ll benefit from all the same exemptions in your year end accounts as a small business, while also being able to send just a balance sheet as your statutory accounts to Companies House.

This balance sheet can also be submitted without certain data points that would be required for larger businesses.

First accounts and company tax return

If you’re submitting your year-end accounts and tax return for the first time, there’ll be slightly different accounting periods to plan for compared to the standard process for companies that have been operating for longer.

Here’s a closer look at the main differences to be aware of.

First annual (statutory) accounts

The first time you submit your annual accounts, your reporting period will usually be longer than 12 months.

This is because your accounting period starts on the date your business was incorporated by default, and ends on the last day of the month when your business was incorporated. 

Company tax return

Your company tax return accounting period can’t be longer than 12 months, even if it’s your first one since being incorporated.

Due to this, and the fact that your annual accounts period is likely to be longer than a year, you may be required to file 2 tax returns to align with your first annual accounts period. This will mean that you’ll have 2 end of year account deadlines.

Small business year end accounts checklist

Now that you understand what year end accounts are and the documentation required for them, you’re ready to start thinking about the process of preparing your year end accounts for submission.

Here’s a step-by-step year end accounts checklist you can use to make sure your financial data is in order and the process is as smooth as possible.

Pre-planning preparation

Before you start preparing the accounts you’re going to submit, it’s crucial to prepare by gathering all the relevant financial datasets and information that will be required for making up your year end accounts.

This will include your bank statements, sales and cash flow data, payroll records if you have employees, and details about your business' assets and debts.

To ensure you make the year end accounting process as smooth as possible, you’ll need to have a system in place for maintaining accurate records throughout the year.

It’s good practice to have a day of each month dedicated to updating your small business bookkeeping, backing up paperwork and receipts, and making sure all transactions are properly recorded and categorised.

This will help you save time when you’re getting closer to your submission deadlines, and minimise the risk of errors when you come to finalise your accounts.

Chase outstanding debts

If you’re running a B2B business, for example a bakery that caters to large events, you may have outstanding invoices at the end of your accounting year end period.

Ideally, you’ll be able to chase up and close these debts before you come to organise your year end accounts. However, this may not be possible in every case.

To ensure your year end accounts are reflecting an accurate financial position at your business, you should record these transactions as outstanding debts, rather than revenue.

You’ll also need to account for the revenues or expenses that haven’t been received or paid, respectively. These figures, known as accruals, should be correctly recorded and categorised for a more accurate and complete record of your business' financial state.

Check that figures reconcile

Reconciliation is another important step you’ll need to take to ensure the final figures submitted in your year end accounts match those in your supporting documents.

During this step, you’ll need to check that your bank statements, invoices, and receipts align with data that’s stored digitally, for example on accounting tools for small business.

Identifying any discrepancies and resolving them wherever possible will help to ensure the accuracy of your final accounts, and avoid future difficulties such as being the subject of a tax investigation by HMRC.

Ensure your employment records are accurate

As part of meeting all your tax obligations, you’ll need to share employment details in your accounts. This will not only ensure you’re compliant with UK employment law, but keep your financial records complete and accurate when it comes to payroll.

Be sure to review all your employee details and update them if necessary, and reconcile any records of how much salary you’ve paid, expenses that your employees have claimed, and any changes in someone’s employment status, e.g. pay raises.

It’s also crucial to check your PAYE (Pay As You Earn) and National Insurance Contributions (NICs) figures, ensuring that you’ve calculated and recorded these accurately.

You’ll also need to submit your Employer Payment Record (P32). This is a summary of all the amounts you’ve paid to HMRC each month, including student loan deductions, National Insurance contributions, and PAYE.

Asset evaluation and stock take

A complete and accurate balance sheet, an integral part of your year end accounts, needs to include a full evaluation of your assets.

Your asset evaluation should include a record of inventory, investments, and equipment owned by your company, and an objective valuation of these.

If you’re a retailer or another merchant who deals in physical goods, it’s also important to carry out a stock take.

This will allow you to identify any discrepancies between the stock levels you’ve recorded and your business' actual inventory, while also providing a good opportunity to write off damaged or obsolete stock.

Seek professional support

Unless you’re running a particularly small business, or you have a background in professional financial management, you should seek professional support from an accountant or financial advisor when preparing your year end accounts.

These professionals will be able to organise your accounts in an efficient and streamlined way, while also helping you stay compliant with the latest tax regulations and identifying potential areas for savings that you may not have considered.

Preparing for next year

Once your end of year accounts are organised and ready for the submission process, it’s also a good idea to start planning for the year ahead while your business' finances are fresh in your mind.Some actionable steps you can take to plan for your next year end accounts include:

• Forward-plan for your small business tax based on this year’s final calculation and investigate benefits like entrepreneur relief you can use for the next period.

• Adjust your cash flow forecast based on your performance this year.

• Develop a new debt management plan based on how your debts have been handled in the previous accounting period.

• Review your relationship with suppliers, and planning to negotiate contracts for more favourable terms, higher operating cash flow and better cash flow management.

• Set new financial goals based on your previous performance, including how you’ll track progress and adjust your strategy based on these.

Year end accounts: the submission process

Once you’ve completed the above checklist, you’ll be ready for the final step in the process: submitting your accounts to Companies House.

Here’s an overview of the deadlines and processes you need to be aware of in this final stage.

Year end accounts deadlines

Your annual accounts and your company tax return will be subject to certain submission deadlines specific to your business' date of formation and accounting period.

Here’s an overview of the important filing deadlines you’ll need to be aware of:

How to submit year end accounts

While in the past, businesses had the option of completing paper end of year accounts and submitting them to Companies House by post, today all limited companies are required to submit their year end accounts through Companies House WebFiling and HMRC’s Government Gateway.

To access these portals, you’ll need your HMRC online account details, your company registration number from when you first set up as a limited company, and your Companies House account details.

If you’re going to delegate your year end accounts to an accountant or financial advisor, then you’ll need to give them your Companies House authentication code and register them with HMRC as an appointed agent.

How much do accountants charge for year end accounts?

Unfortunately, there’s no reliable way to determine how much your end of year accounts cost when it comes to outsourcing this process to an accountant.

These service prices can range anywhere from less than £100 to several thousand pounds. Whether or not a suitable accounting service is within your small business budget will depend on several factors such as:

• The legal structure of your business, e.g. a limited company (LTD) or limited liability partnership (LLP).

• How complex your accounts are, in terms of your sources of income and expenditure, and how many assets, debts, and loans you have.

• How well-organised your financial data is, how accessible it is for accountants, and how accurate your calculations have been throughout the accounting period.

If you’re unsure of how your unique business situation is going to affect the price of accounting, and wondering “what does my accountant need for year end?” be sure to get quotes from several different accountants to better understand the process.

Late filing penalties

If you fail to submit your annual accounts by the deadlines listed earlier, you may have to pay a late filing penalty on top of the tax you owe. These penalties are more severe the later your accounts are submitted, and are higher for PLCs than LLPs.

Common mistakes to avoid for year end accounts

To ensure your year end accounts are submitted on time and as accurately as possible, it’s important to be aware of some of the most common mistakes that businesses can encounter throughout the process.

Some things to monitor and guard against include:

• Errors in financial statements, which need to be checked thoroughly and reconciled before you move onto the next stage in filing your end of year accounts.

• Missing documentation, such as receipts and invoices to validate the figures you’ll submit.

• Failing to back up data, which can be mitigated by using automated backup and storing files in several locations to guard against technical issues.

• Deadline pressures, and increasing the risk of mistakes by rushing to meet deadlines. This can be prevented by having strict internal deadlines for preparing accounts well ahead of HMRC’s deadlines.