When we talk about the laws in the United Kingdom, all companies are required to submit their annual accounts regardless of whether they are trading or otherwise and regardless of the period of registration with Companies House. Non-submission could lead to the imposition of fines, prosecution of yourself and the company, deregistration of your company from Companies House and tarnish your individual and corporate reputation.
Failure to file the annual accounts not only amounts to negligence, but it also becomes a legal obligation.
The following are guidelines for the whole procedure that needs to be followed in case you fail to file the annual accounts as per UK law.
What are Annual Accounts?
Annual accounts (otherwise known as statutory accounts) is an account of how a company has traded over the course of its financial year, and is submitted to Companies House ( and usually HMRC as well). The account will generally include the:
- Profit and loss account
- Balance sheet
- Cash flow statement (where applicable)
- Director’s report (where applicable)
These provide an accurate illustration of a company’s financial standing including what a company owns, what it owes and how it has gained and spent money.
All companies limited by share capital must submit annual accounts to Companies House:
- Private limited company (Ltd)
- Public limited company (PLC)
- Dormant company
- Limited liability partnership (LLP)
Dormant companies must submit dormancy accounts even though they haven’t traded.
The Filing Deadline for Annual Accounts
The deadline to file your accounts with Companies House is calculated relative to the financial year-end. Companies House has a 9-month filing deadline after the financial year end for most private limited companies, whereas public limited companies have to file after 6 months following their financial year end. Additional rules apply to the filing of your first accounts with Companies House.
If the deadline for filing your annual accounts with Companies House is missed, it is automatically classified as a breach of legal regulations.
It’s usually not possible to be granted an extension unless you have prior notification to Companies House that it is completely unavoidable, and sufficient proof can be provided in advance.
What Happens If Annual Accounts are Not Filed?
Failure to file your company’s annual accounts can result in a number of consequences, all of which are automatic and which can significantly worsen as the delay extends further from the deadline.
1. Companies House Late Filing Penalties
The most immediate and obvious consequence of missing the deadline to file accounts is that the company will be issued a financial penalty. This is automatic and calculated based on how late the accounts are filed.
Private limited companies are charged penalties as follows:
- Up to 1 month late: £150
- 1 to 3 months late: £375
- 3 to 6 months late: £750
- More than 6 months late: £1,500
However, this penalty can double if your accounts are late two years running. The penalties for public companies can reach up to £7,500 based on the delay from the deadline.
These penalties are not applied on a discretionary basis; ignorance is no excuse when dealing with Companies House filings.
2. Directors Can Face Legal Action
A further severe consequence of non-filing of annual accounts is that the responsibility for doing so rests on the company’s directors. Directors of UK companies have a legal obligation to ensure their accounts are prepared and filed with Companies House. This duty cannot be wholly delegated to another person, such as an accountant or third party service provider. If a company’s accounts have not been filed on time, it is considered a legal requirement that has not been met, and the Directors themselves can be prosecuted. The penalties for failing to file, especially if it’s a chronic problem, can be extremely high, and it is possible to receive:
- A criminal conviction and criminal record
- An unlimited fine (depending on the case)
Even if your business isn’t actually making a profit, Directors remain completely responsible for all statutory filings and requirements.
3. Compulsory Company Strike-Off
Another very serious consequence of consistently failing to file accounts is the potential compulsory dissolution of your company by Companies House. Companies House may do this when it becomes apparent that a business isn’t being managed or operated in a way that is visible, for instance, due to continued failure to file accounts and confirmation statements. When this happens:
The company ceases to be a legal entity and is officially removed from the register.
- You cannot conduct any business in the name of the company.
- Any company bank accounts will typically be frozen by the banks.
- Existing contracts will be invalidated.
Bona Vacantia (Loss of Assets)
After compulsory strike-off, any assets belonging to the dissolved company will revert to the Crown by law, as stated in the rule of Bona Vacantia. This rule means any monies left in the business bank account, any equipment, or any company-owned property could all be claimed. Reinstating a dissolved company is a complex and time-consuming legal process.
4. Business Reputation Suffers
Companies House records are publicly available for everyone to view, so a company with no record of its accounts may give the impression to customers, suppliers and lenders that it’s not financially stable, not well run, and untrustworthy.
Any business looking to establish partnerships, work on a credit basis, or seeking finance for growth may be wary of working with a company whose status isn’t entirely clear to the public eye. A poor reputation can have a lasting detrimental effect on a company.
5. Difficulties in Raising Finance or Extending Credit
Banks and lending institutions will generally require a business to have clear, up-to-date accounts before offering loans, credit facilities, overdrafts, or investment.
Not having your accounts in order, or letting your deadline pass, could lead to an outright refusal from a lender due to inability to assess the financial health of your business. This could also apply to other credit agencies who monitor financial data.
This can be severely problematic for a business trying to maintain its cash flow and operations.
6. Escalation of Costs
Not only are you likely to face substantial financial penalties if you do not file your annual accounts, but doing so will also involve additional indirect expenses. These include accountant and legal fees for dealing with the overdue filing or potentially pursuing legal action to reinstate a struck off company.
The longer a company fails to submit its accounts, the higher the costs become and it becomes increasingly complicated to sort out, especially if your company has been struck off from the register.
Can You Appeal a Penalty for a Late Filing?
Yes, Companies House do allow appeals, however these are very rarely successful.
Examples of reasons which may be successful:
- Fire or serious damage to records
- Unexpected and unavoidable circumstances
- Serious illness of directors
- Matters outside the companies control
Common rejected reasons for appealing a late filing penalty:
- Forgetting to file
- Accountants mistake
- Lack of money
- Didn’t realize what was required
- Company is dormant
An appeal must always have strong supporting evidence to back up the reason why the accounts were filed late, each individual appeal will be considered by Companies House.
How to Avoid Submitting Your Accounts Late?
It’s far simpler to avoid submitting annual accounts late than to suffer from the consequences of it. Your business can avoid the pitfalls by:
- Maintaining an up-to-date record of books; accounts are much simpler when they are being updated on a weekly, monthly and annual basis as opposed to being completed and filed in a last-minute panic.
- Knowing your deadline: Companies House has an accounting reference date each year; know what it is and add at least 3 reminder events in the calendar to remind you well in advance when accounts must be filed by.
- Appointing an accountant, an accountant will have access to all the required forms, accounts will be prepared and submitted correctly to Companies House in advance.
- Submitting online, submitting your annual accounts via the internet reduces postal delay.
- Planning ahead: Companies House will accept accounts for filing several months before their due date.
Conclusion
Failure to file annual accounts with Companies House can lead to a whole range of serious issues for your company. This not only involves a financial penalty but could see action being taken against the directors. Directors could be prosecuted, the company dissolved or even the business’s assets taken away by liquidators. Every company, whether a limited or even a small or dormant company, still has a duty to submit annual accounts on a yearly basis.
Companies House have a zero tolerance policy regarding filing accounts late and ensures companies adhere to strict regulations, in order to keep trust and transparency within the UK business environment.
Frequently Asked Questions
How much does the fine for late filing of accounts stand at?
The amount of the fine varies with the length of the period that elapses; penalties range from £150 to £1,500 per year, depending on whether it’s a private company. Late filing for consecutive years is charged double penalty fees.
Can a company be struck off for not filing accounts?
Yes. If a company persistently fails to file its accounts, the Registrar of Companies can strike it off and dissolve it, removing it from the register so that it ceases to exist as a legal entity.
Are there any chances for directors being liable for not filing accounts?
Yes, it’s the responsibility of the directors to ensure the filing of accounts. Noncompliance leads to prosecution, fines and even a criminal record, regardless of hiring an agent.
Can there be appeals against penalties for late filing?
Yes, but there are specific circumstances, such as cases of severe illness or accidents. Appeals based on excuses like forgetfulness are bound to fail.
What effects does failure to file have on a company’s reputation?
There are many effects of failing to file accounts with regard to reputation, such as destroying ties with lenders and suppliers.
