The purpose of submitting Annual Accounts is largely so that the government, the public, shareholders/potential investors, lenders and suppliers can see your company's financial position.
- HMRCto work out the tax you owe
- The publicCompanies House puts them on public record
- Shareholders and investorsto see how the company did
- Banks, lenders and suppliersto see if you're stable enough to work with
The government requires your profit and loss statement (incomes and expenses) and balance sheet (assets and liabilities) in order to calculate the correct tax you owe.
Your accounts are then made public to comply with transparency laws which require all companies (even dormant or non-trading ones) to file annual accounts so the public, banks, and potential investors can view and assess the health of your business.
It also serves a purpose of keeping a company accountable to its shareholders by allowing them to see how their investments have been managed and how the company performed over the year.
It helps potential lenders, suppliers and future business partners see if your company is stable enough to work with too.
What should your Annual Accounts look like?
The purpose of your annual accounts is to serve as a financial summary of your business for the year, so in order to create your annual accounts, you will need to gather all the financial data (invoices, receipts, bank statements etc.) over your 12 month accounting period.
With this data, you can prepare the 2 core financial statements:
- A Balance Sheet, which shows what the value of the company's assets (what it owns), and its liabilities (what it owes), were on the last day of the accounting period.
- A Profit & Loss Statement, which shows the totals of each type of income and expense, and the profit or loss made that year.
| What it owns | |
|---|---|
| Van | £16,000 |
| Tools and equipment | £5,500 |
| Money customers owe it | £14,200 |
| Cash in the bank | £11,300 |
| Total | £47,000 |
| What it owes | |
| Suppliers | £3,570 |
| Corporation Tax | £7,030 |
| VAT | £2,400 |
| Total | £13,000 |
| What it owns minus what it owes | £34,000 |
| Income from jobs | £186,000 |
|---|---|
| Materials | −£52,000 |
| Subcontractors | −£38,000 |
| Wages | −£41,000 |
| Van, fuel and tools | −£9,800 |
| Other costs | −£8,200 |
| Profit before tax | £37,000 |
| Corporation Tax at 19% | −£7,030 |
| Profit after tax | £29,970 |
Made-up figures, to show what each statement covers. Real accounts follow a set layout and have more detail.
Note: Small businesses can leave the Profit & Loss Statement out of the accounts they send to Companies House, so it isn't made public, and micro companies can send Micro Company Accounts instead. HMRC still gets the full accounts with your Company Tax Return.
After the financial statements come what are known as the Notes to the Financial Statements.
The purpose of these notes is to explain how you or your accountant came to the figures that have been given in the financial statements and why they are what they are.
This is typically done by stating the following:
- The Accounting Policies used, such as the basis of preparation (FRS 102 or FRS 105, the UK's rules for preparing accounts), how revenue was recognised (when income counts as earned) and how stock value was calculated.
- The Depreciation Method used to calculate the fall in value of vehicles, machinery, office equipment etc.
- The average number of employees.
- Director Advances & Credits – this is just a disclosure of any loans, advances, or financial guarantees made between the company and directors.
- Financial Commitments like legal guarantees or upcoming liabilities that aren't fully visible on the balance sheet.
Note: Businesses who qualify as a micro-entity (they meet two of these: turnover of £1 million or less, assets of £500,000 or less, 10 or fewer employees) are legally exempt from having to state almost all notes apart from the average number of employees, director advances & credits and any financial commitments.
Finally, there should be a compliance statement confirming that the report has been prepared in accordance with the small companies regime (the simpler rules that small companies can follow). This should be stated as approved by the directors and then signed by name.
This guide gives general information only. Tax rules change and every business is different, so speak to us before acting on it. Rules and figures checked in November 2026.
They come with every limited company package, from £90 a month, along with your Corporation Tax return and confirmation statement.
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