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UK companies from an accounting perspective

Nicola Morgan-Schulz, Manager of Jordans Accounting Services, answers your questions on accounting and tax requirements of a UK company.

When is the financial year end of a UK company?

When the company is incorporated, it will be assigned a financial year end. This is also known as the Accounting Reference Date (ARD).

The ARD will depend on when the company was formed, and is set one year to the end of the month in which the company was incorporated. For example: If the incorporation date is 15 March 2016, the Companies House assigned ARD will be 31 March 2017. Therefore, UK companies can have an ARD of any date.

Can I change the financial year end/Accounting Reference Date (ARD) of the company?

Yes, the ARD allocated by Companies House can be changed. In fact, if the company is part of a wider group, Jordans Accounting Services recommend that the ARD is changed and brought in line with the ARD of the group. This makes inter-company reconciliations and consolidated group accounts easier to complete.

The ARD can be changed at point of incorporation or by a filing at Companies House.

How often do UK companies have to file their accounts?

A company should keep up-to-date books and records, however this doesn't mean monthly or quarterly bookkeeping should be completed.

A UK company is required, as a minimum, to file annual financial statements in "statutory format" with Companies House. "Statutory Format" means annual financial statements either in line with UK Generally Accepted Accounting Principles (UKGAAP) or International Financial Reporting Standards (IFRS).

Companies with financial year ending on or after 31 December 2015 should now apply Financial Reporting Standard (FRS) 102. This is bringing UK accounts more in line with IFRS regarding presentation and accounting treatment.

Are the annual accounts the same as the "Annual Return"?

No, the annual accounts are not to be confused with the Annual Return. The Annual Return is a separate form containing the company's statutory date, and not the financial information.

The Annual Return is being replaced by the Confirmation Statement on 30 June 2016.

What tax does a UK Company have to pay?

All companies pay UK corporation tax on net profits and gains. Companies may also be required to report on different UK taxes dependant on their trade and activities.

If a company operates a "VAT-able" trade within the EU, they can register for Value Added Tax (VAT), however this isn't mandatory until their UK turnover exceeds £83,000 in a 12 month period. UK companies are not automatically assigned a VAT number on incorporation.

If a UK company has employees, it should register for Pay As You Earn (PAYE). This allows the company to complete a payroll for its employees and deduct tax on their behalf for payment on a monthly basis to the tax authorities. These deductions cover UK income tax and National Insurance (NI) contributions.

How much is UK corporation tax?

UK corporation tax is currently set at 20%. However, the rate is set to fall to 19% in April 2017 and 17% from April 2020.

How do companies pay corporation tax?

When a company is incorporated it is automatically registered with Her Majesty's Revenue & Customs (HMRC), the UK tax authority. Within a few days of incorporation, the company will receive correspondence from HMRC confirming the registration, providing the company's Unique Tax Reference (UTR) and confirming the dates that tax returns should be made up to and the filing dates.

The company must submit annual corporation tax returns (CT600) along with an electronic copy of the financial statements (HTML) online to HMRC. Tax returns must be submitted within 12 months of the ARD. If a tax liability is due, this must be paid within 9 months and 1 day of the ARD.

Are any companies exempt from filing tax returns?

If a company is to remain dormant, the CT41G which is sent after incorporation can be completed, stating this and then HMRC will write to confirm tax returns are not required until a trade starts. Certain types of companies can also apply for exemption from filing a tax return. These are generally not-for-profit organisations and property management companies.

My company is registered for VAT. How does this process work?

VAT Returns are generally completed and filed quarterly. They should disclose all sales and purchases subject to VAT, even if they are zero rated. The return should be filed within 1 month and 7 days of the quarter end. VAT liabilities calculated should be paid within 1 month and 7 days of the quarter end.

Once VAT registered an EORI (Economic Operator Registration and Identification) can be applied for. This provides the company with a unique reference which can be used by any customs authority in the EU.

How much VAT does a UK company need to pay?

The standard rate of VAT is currently set at 20%. However there are varying rates and exemptions depending on the services and goods provided and who they are being supplied to.

My company employs other people, so how does PAYE work?

UK companies can pay their employees weekly, fortnightly, monthly or annually. For each payroll run, e.g. if monthly, every month a Real Time Information (RTI) submission must be made to HMRC.

The RTI will summarise the total tax payable to HMRC, broken down into income tax, employees NI contributions, employers NI contribution and any statutory payments (such as maternity or paternity pay, sick pay, etc). If employees also receive benefits an annual declaration must also be made called a P11d. This form details the additional taxable benefits the employee receives and the tax payable on those benefits by the employer. Benefits include such things as a company car or the company paying for private medical insurance for the employee.

Do I need to provide my employees with a pension?

Yes, all UK companies are now required to offer its employees a work place pension. This is known as "Auto-Enrolment". However there are exceptions for some companies and we'd be happy to advise further on these.

Companies are currently being issued with a staging date by which their pension scheme should be set up and offered to employees. The regulations stipulate how much the employee and employer should input into the pension based on the employees earnings.

Do UK companies require an audit to be carried out?

No, not all companies. UK audit limits increased for companies with a year-end beginning from 1 January 2016. The limits set apply to company turnover, assets and number of employees. If a company meets 2 of the 3 limits in place, an audit will be required.

How can Jordans Accounting Services help with my UK company?
  • Advice before incorporation on UK companies, tax treatment and audit.
  • Tax advice on VAT registration
  • Act as the company's tax agent for corporation tax, VAT and/or PAYE.
  • Responding to HMRC's initial corporation tax forms (CT41)
  • Registering company for VAT and completing ongoing VAT returns
  • Registering the company for PAYE and completing the monthly payroll thereafter
  • Completing company's financial statements for filing with Companies House
  • Calculating companies corporation tax liability and filing the return with HMRC
  • Regular bookkeeping and/or management accounts

We can also refer any legal matters to our sister company Jordan's corporate law such as:

  • Drafting of employment contracts
  • Assistance with creating new classes of shares

 Nicola Morgan-Schulz

Nicola Morgan-Schulz
Associate Director, Corporate Services | Company Formation
T: +44 (0)117 918 1241

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