Types of limited company accounts and the details they should include

Every year, companies must prepare statutory accounts for their members and must also file a version of these with Companies House. However, dependent upon the type and size of the company, different limited company accounts formats may be available.

Legislation

It is UK company law that determines what types of statutory accounts formats are available to a company. In March 2015 the Companies Act 2006 was amended by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. The effect of these amendments has been to change the types of limited company accounts now available for preparation and filing. Key amendments include:

• A revised definition of small company – more businesses are likely to meet the new standard.
• Removal of the option for small companies to file abbreviated accounts.
• Introduction of a new option to file abridged accounts.
• A change to the premise upon which accounts are prepared and filed – introducing the ‘file what you prepare’ model.

Most of the amendments affect companies subject to the small companies’ regime and the types of accounts they can prepare.

Let’s look at how the size of a company is determined, for the purposes of company accounts preparation.

Company size thresholds

The Companies Act 2006 prescribes a set of thresholds which determine the size of a company. These thresholds are important because they decide the amount of detail a company must include in it’s statutory accounts. A company can be classified as very small (a micro-entity), small or medium. If it does not qualify for any of these size standards, then it is considered a large company, and as such must prepare and file a full set of limited company accounts, including:

• A full balance sheet;
• A full profit and loss account;
• A comprehensive set of notes to support the balance sheet and profit and loss account;
• A directors’ report; and
• An auditor’s report.

In contrast, companies that qualify as micro-entities, small or medium-sized, may be able to produce a full set of year end accounts that are simpler and contain fewer elements.

To qualify for a particular classification, the company must meet two or more of the size requirements for a category, as set out in Table A below:

The two year rule:

If this is the company’s first financial year then it is straightforward to calculate company size for the purposes of accounts preparation. For most companies, (there are some limited exceptions dependent upon the trading activity of the company) it is as simple as meeting the size classifications outlined in the table above. For subsequent years however, the rules are more complex and are explained in our guide entitled How to calculate company size when preparing year end accounts.

Full accounts

The elements that make up a full set of limited company accounts vary, dependent upon the size of the company. As can be seen from Table A – the smaller the company classification, the less detail is required in a full set of limited company accounts. The smallest companies can prepare micro-entity accounts – a special type of full accounts, that need only contain a simplified balance sheet with footnotes and a simplified profit and loss account. Under section 477 of the Companies Act 2006, most micro-entities and small companies will also be able to claim exemption from audit and will not therefore be required to submit an auditor’s report.

As has already been mentioned, no exemptions are available to large companies.

It is possible that the company may not be required to submit a full set of accounts to Companies House, although again this is dependent upon the size of the company. There are simpler options that may be available and we move on to consider these now.

Abridged accounts – for small companies only

One change introduced by the amended regulations is the option for small companies to prepare abridged accounts. Abridged accounts are only available to companies that are entitled to prepare accounts under the provisions of the small companies’ regime (as defined in section 381 of the Companies Act 2006). Micro-entities, medium-sized and large companies are not entitled to produce abridged accounts.

Abridged accounts enable the company to present a simpler balance sheet and profit and loss account, with fewer individual line items (and therefore less detail) – although they must continue to present a ‘true and fair’ view. The company can decide to abridge either the balance sheet or the profit and loss account, or both, but to do so the directors must obtain approval from every shareholder, every year. If the directors do decide to prepare abridged accounts, then these are the accounts that will be delivered to the company’s members and filed for the public record.

Abridged accounts must include the following elements:

• Abridged balance sheet and/or abridged profit and loss account.
• Director’s signature and printed name on balance sheet.
• Auditors’ report (unless claiming exemption).
• Directors’ report – including signature and printed name of a director or secretary. A strategic report and/or business review is not required.
• Notes to the accounts.
• Statement on the balance sheet above the director’s signature that the accounts have been prepared in accordance with the provisions of the small companies’ regime.
• Statement that all members agreed to the abridgement.

Accounts for members versus accounts for filing

Before the introduction of The Companies, Partnership and Groups (Accounts and Reports) Regulations 2015, small companies usually prepared full accounts for their members and then often decided to abbreviate the accounts delivered to Companies House – reducing the amount of company data available to view on the public record. However, the amended regulations introduced a ‘file what you prepare’ model, requiring as a starting point that small companies file on the public record, the accounts they have prepared for members.

This amended approach means that for company accounting periods beginning on or after 1 January 2016 the option to file abbreviated accounts is no longer available. However, it remains possible for small and micro-entities to file ‘filleted’ accounts, significantly reducing the amount of company detail available on the public record.

‘Filleted’ accounts – small companies or micro-entities

The term ‘filleted’ accounts refers to exemptions that are available under section 444 of the Companies Act 2006. If a company is considered small (or a micro-entity), then regardless of whether it has prepared full or abridged accounts for members, it may elect to ‘fillet’ the accounts it files with Companies House – choosing not to file the:

Dormant company accounts

Section 1169 of the Companies Act 2006 states that a company is dormant if it has had ‘no significant accounting transactions’ during an accounting period. In fact, there are only a few, very specific transactions that a company may put through their accounts and still be considered dormant, and these are explained in our article ‘What is a dormant company?’

If the dormant company has previously traded, Form AA02 (DCA) is not available. However, unaudited dormant company accounts may be filed with Companies House. These are very simple and comprise:

• A balance sheet including the director’s signature and printed name.
• Statements above the director’s signature to the effect that the company has been dormant throughout the year, together with statements required if the company is claiming audit exemption and if the accounts have been prepared in accordance with the provisions of the small companies’ regime.
• Any previous year’s figures for comparison.
• Certain prescribed notes to the balance sheet.

Note however that the company may still be required to prepare more detailed statutory accounts for members – dependent upon the size of the company. Conversely, if the dormant company qualifies as a small company, then they may still choose to abridge and/or ‘fillet’ their accounts.

Small company? Decisions, decisions…

Whilst for never traded dormant companies, or medium-sized and large companies the detail to include in the accounts is clear, for small companies there are options. Choosing between the options will often be determined by the fine balance between providing enough detail for members whilst curbing (where possible) the detail disclosed on the public record and available therefore to competitors. Generally, a small company will be choosing between the following options:

Provides members with a simplified balance sheet and profit and loss account, but with an option to ‘fillet’ and file only the balance sheet and foot notes for the public record.

Provides members with an abridged balance sheet and profit and loss, with the option to ‘fillet’ and exclude the director’s report and profit and loss account and related notes when filing for the public record.

Usually provides members with an abridged balance sheet and full profit and loss account, but with the option to ‘fillet’ and exclude the director’s report and profit and loss account and related notes from the Companies House accounts.

Provides members with a full balance sheet and profit and loss account, director’s report and notes, but with the option to ‘fillet’ and exclude the director’s report and profit and loss account and related notes from the filing for the public record.