Just like filing a tax return, submitting a financial statement is a legal obligation. It makes sure that a company’s financial information is accessible to anyone who wants it. Not filing can lead to hefty fines. What’s more, the board of directors can be held liable if the company goes bankrupt. Who files the financial statement, when it needs to be done, and what must be included is all stipulated by the law. In this instalment of our series on financial statements, we break down this crucial process.
Filing a financial statement with Companies House each financial year can be mandatory depending on a company’s size and legal structure. If your business is one of the following, filing a financial statement is obligatory:
The content of the financial statement differs depending on whether a company is classed as small, medium or large. This classification depends on meeting at least two of three criteria stipulated by the Chamber of Commerce for two consecutive years: asset value, net turnover, and number of employees.
For instance, to be classed as a small company, a business needs to show at least two of the following: an asset value of £3.26m or less, a net turnover of £6.5m or less, and 50 employees or fewer.
Here’s a quick summary of what needs to be filed depending on company size:
Small businesses: an abbreviated balance sheet and simple notes.
Medium businesses: a simple balance sheet and profit and loss account; detailed notes; an annual report; an audit report; articles of association and proposed profit or loss appropriation; profit sharing certificates; a list of important events in the financial year.
Large businesses: A detailed balance sheet and profit and loss account; detailed notes; an annual report; an audit report; articles of association and proposed profit or loss appropriation; profit sharing certificates; a list of important events in the financial year; a list of the legal entity’s special rights of control; names and locations of branch offices.
For more information, go to the Companies House website.
All financial statements need to be prepared within nine months of the end of a given financial year. Shareholders can ask for a six month maximum extension in exceptional circumstances.
A financial year is the period covered by the financial report, and is usually twelve months running concurrently with the calendar year. It’s important to remember that a period of months in this case will end on the same corresponding date as the start date. For instance, if a company has an accounting reference date of 3 April, it has until midnight on the third of the following January to submit its financial statement, as opposed to 31 January. However, this is not the case when it comes to the last day of a given month. For example, if your accounting reference date is 30 April, you’ll have until 31 January, not 30 January, to file your financial statement.
It’s also useful to note that consistently filing on time is good for your company’s credit rating as it proves your reliability.
We’ll continue to explore the world of financial statements in the next blog, and remember to watch out for the upcoming release of our book, Financial Statements for Dummies.