Outsourcing - End Of Year Accounts

Should you choose to operate a Limited Company you will be required to produce Company Annual Accounts & Company Tax Returns. All Limited Companies, whether they have traded or not, must file accounts in line with the format specified in the Companies Act. The accounts provide the shareholders, who are the owners of the company, with important financial information.

Partnerships are not required to submit formal accounts unless its members are a limited company. If the partners are limited companies, the partnership must then complete annual accounts in the same format as a limited company.

A business is legally required to maintain financial records for the company and these must be kept for a minimum of six years. The format for recording the financial records is not defined in law but should include details of all goods purchased or sold and all receipts and expenditure.

These are typically:-

The Cash Book - this is a detailed record of all the money that comes into and goes out of the company.

The Sales Ledger - this records the sales your company has made, the amount of money received for your goods or services, and the amount of money owed to the company at the end of each period by its customers.

The Purchase Ledger - this records all purchases made by your business, the amount of money paid to your suppliers and the amount of money owed by the company at the end of each period to its suppliers.

The Wages Book - if you employ staff, you will need to keep a record of all salary payments made, including details of National Insurance Contributions.

Annual Accounts

The four main records listed above must be summarised in a compulsory format (known as statutory accounts) on an annual basis at the company’s year end.

Companies with annual sales of less than £5.6 million are not required to use an accountant to prepare these accounts, although it is important to note that fines can be given to the company directors if the accounts are incorrect or illegible.

Larger companies must have their accounts audited by a registered auditor, but as the majority of freelancers will not exceed the £5.6 million turnover threshold this is unlikely to be a requirement.

The annual accounts must include:-

Balance Sheet
Profit and Loss Account
Director’s Report
Notes to the Accounts (for any other relevant financial information)

The Balance Sheet

A Balance Sheet will show fixed assets (such as computer equipment), current assets (such as bank balances and debtors), current liabilities (such as creditors, VAT and PAYE) and any long term liabilities of the company.

It will also show the Share Capital and Retained Profits of the Company.

The Profit and Loss Account (P&L)

The P&L account summarises the business’ trading transactions - income, sales and expenditure and the resulting profit or loss for a given period.

The Accounts must be submitted to Companies House ten months after the year end whilst the Directors Report & Company Tax Return must be submitted to HMRC twelve months after year end.

Accountancy Reference Dates

The Balance Sheet will normally reflect a business’ financial position at its accounting reference date (ARD) which is the last day of its accounting reference period. The accounting reference period (often referred to as the financial year), is usually twelve months.

The ARD is automatically set when the company is incorporated and is set at the last day of the month in which the company was formed. This date can be changed by notifying Companies House and HMRC.

Dormant Companies

The term applies to companies which have had no significant accounting transactions throughout the course of the company financial year. The accounting requirements remain the same for dormant companies as for actively trading companies. A template format is available from the Companies House website - form DCA.

Outsourcing - End Of Year Accounts

See also in this section...