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Overdue accounts can be symptomatic of systemic issues within an entrepreneurial business.
Many entrepreneurs do not have access to an experienced finance team and sometimes struggle to file statutory accounts at Companies House and tax returns at HMRC.
How do early-stage and growing companies access help to avoid the potentially serious consequences of late filing?
Overdue accounts can be the Achilles heel for early-stage and growing entrepreneurial businesses.
Often, responsibility for filing a set of company accounts at Companies House and tax returns at HMRC is given to an inexperienced employee or dealt with by the founder (or their unsuspecting partner!). These options may seem cost-effective at the time, but without an experienced accounting foundation, could end up costing you dearly.
Making sense of the terminology (even the title ‘statutory accounts’ sounds intimidating), deadlines and requirements is tough but seeking help and support isn’t – there is plenty available.
With automatic civil penalties and legal exposure intended to act as a deterrent for late submissions, it is essential to get it right.
Are the following questions keeping you awake at night?
- Do I need an accountant?
- Do I require an audit?
- What accounting policies do I need to adopt?
- Am I claiming the tax deductions that I am entitled to?
- Is my VAT, NI and PAYE being paid correctly?
- Am I entitled to claim R&D Tax incentives?
- Could someone more qualified be doing my accounting for less?
- Am I spending too much time on accounting and finance when I could be growing the business?
These are common questions but don’t worry, help and support are available.
Overdue accounts – what could be going wrong?
If the following scenarios sound familiar, it’s likely that the person tasked with dealing with accounting and finance may already be dealing with overdue accounts or may expect to deal with the consequences soon:
- Entrepreneurial businesses may lack the skills and experience of a senior accounting resource within the accounting team to make sure accounting standards are met. For example, an inexperienced resource may not be aware that firms must submit tax returns and accounts to HMRC in XBRL format.
- Some firms may have insufficient controls and processes in place to produce accurate and timely accounts, track performance throughout the year and deal with unforeseen situations.
- Leaders who choose not to invest in effective and efficient accounting systems may encounter difficulties when it comes to gathering information and submitting accurate accounts.
Similarly, last-minute filing of accounts just before the deadline could be symptomatic of broader organisational issues within the company.
Filing late? Get ready for a fine
Mistakes and undelivered accounts can result in stiff penalties.
Penalties were introduced in 1992, and these regulations are now enforced under the Companies Act 2006.
Failure to deliver accounts on time is a criminal offence; the fine incurred depends on how late the accounts are filed and the type of business.
For private limited companies:
- Up to one month – £150
- One to three months – £375
- Three to six months – £750
- More than six months – £1,500
For public limited companies:
- Up to one month – £750
- One to three months – £1,500
- Three to six months – £3,000
- More than six months – £7,500
However, it’s not just the immediate monetary cost of the penalty of overdue accounts that founders must consider. Beyond the financial penalties, overdue accounts could also cause irreparable reputational damage to the firm.
Fundraising or preparing for exit?
Beyond the short-term sting of a fine, entrepreneurs who are looking to raise funding or aiming for a successful exit should pay close attention to the due date of their accounts.
During the due diligence stage of a sale a potential investor may use this tardiness to negotiate on market value seeing it as a sign of a poor control environment or reach the conclusion that the business is trading at the brink.
How changing a company’s year-end could be a good thing
If founders cannot meet the submission deadline, a company may shorten its accounting period by one day to adjust the deadline by three months; essentially giving founders an additional 3 months to file the previous year’s accounts.
However, to the more experienced reader, extending the deadline to gain additional time should be treated with caution.
Where can you find help?
There is plenty of help on hand if founders know where to look.
Instead of focusing on filing statutory accounts, founders of entrepreneurial businesses should be concentrating on revenue-generating activities and growing the business; leave the accounting to a qualified professional.
To avoid the fines associated with overdue statutory accounts and tax returns, the most cost-effective and efficient method is to consider an outsourced accounting solution.
Seeking support from a trusted partner, like Isosceles, will make the year-end process pain free and keep you on the right side of HMRC!
More information related to late filing penalty fees can be found at Companies House.