Hi there, my cousin and I just registered a new private limited company, I heard that we would now have a legal obligation to keep certain types of accounting records and also file them with HMRC and Companies House. Can you please tell us what accounting records we have to legally keep when having a private limited company in the UK?
The Answer from Solicitors Online
Private limited companies in the UK are required by law to maintain and file certain accounting records and annual accounts.
Accounting records and annual accounts
In accordance with section 386 of the Companies Act 2006, private limited companies in the UK must keep accounting records sufficient to
(i) show and explain the company’s transactions
(ii) disclose the company’s financial position with reasonable accuracy
(iii) enable annual accounts to be drawn up in accordance with the Act
Private limited companies must prepare annual accounts, send them to shareholders and Companies House, and present them before general meetings (meeting where all the companies shareholders and directors have been invited to attend) in accordance with section 394, 415, 423, 437 & 441 of the Companies Act 2006.
Annual accounts that private limited companies must keep are as follows:
a profit and loss account
a balance sheet
a directors’ report
notes to the accounts
if appropriate: (i) an auditors’ report; (ii) group accounts
For companies with a high turnover there is requirement to have a company’s annual accounts audited as stated in section 475 of the Companies Act 2006.
An auditor is a person who makes an independent report, the “auditor’s report” to a company’s shareholders as to whether the company’s annual accounts have been properly prepared in accordance with the Companies Act 2006 and the relevant reporting framework. The report must also say whether or not, in the opinion of the auditor, the company’s accounts give a true and fair view of the company’s state of affairs and the profit or loss of the company.
In accordance with section 478 of the Companies Act 2006, in preparing his report the auditor must carry out such investigations as will enable him to form an opinion as to whether the following has been done
(i) adequate accounting records have been kept
(ii) the company’s accounts are in agreement with the accounting records
There is an exemption from audits for dormant companies and small companies.
A dormant company is a company with no significant accounting transactions, i.e. no entries in the accounting records due to a lack of trading.
A small company for the purposes of this exemption essentially means a company with less than £6.5m annual turnover and a balance sheet smaller than £3.26m.
If the company is to take advantage of the audit exemption, the balance sheet must contain an appropriate statement by the directors as required by section 475(3) of the Companies Act 2006.
If a minimum of 10% of the shareholders of a company want the company to be audited, they can give notice to the company of this and the company will be forced to comply even if the company would otherwise be entitled to exemption.
Auditors are now exposed to potential criminal liability in accordance with section 507 of the Companies Act 2006.
If an auditor knowingly or recklessly causes an auditor’s report of the annual accounts to include a matter that is misleading, false or deceptive in a material particular then he will be liable to face criminal prosecution.
If an auditor knowingly or recklessly causes an auditor’s report on the annual accounts to omit a statement:
(i) that the company’s accounts do not do not agree with accounting records
(ii) that necessary information and explanations have not been obtained or
(iii) that directors wrongly took advantage of the exemption from the obligation to prepare group accounts
the auditor will be also be liable to face criminal prosecution.
If you need legal advice online on the accounting records and annual accounts of a company, you can speak to our Solicitors online right now.