Financial Reporting, Tax, and Audit of Companies in the UK

Maintaining accounting records and preparing financial and tax returns is a crucial part of the administration of foreign companies. This article focuses on the main reporting obligations of UK companies to the registrar and tax authorities. In particular, we will look at the reporting, tax, and audit rules for the most popular instruments in international business - UK companies, limited liability partnerships (LLPs), and LP partnerships.

Private Limited Companies

UK private limited companies are required to:

1.     Submit an annual Confirmation Statement and notify Companies House of changes in a timely manner;

2.     Keep proper accounting records;

3.     Prepare and submit financial statements annually;

4.     Conduct an audit where required by law;

5.     File tax returns and pay taxes.

Annual Confirmation Statement

Every company must submit a Confirmation Statement (Form CS01) to Companies House within 14 days of the end of the review period. The review period is a 12-month period starting from the date of incorporation or the anniversary of the last Confirmation Statement. This confirms that the company has reported all legally required information, such as details of directors, shareholders, registered office, and persons with significant control (PSC).

Changes to industry codes (SICs), share capital, or shareholder information (names, class and number of shares, dates of transfer) can be included with Form CS01. Other changes, such as registered office address or PSC details, require separate forms filed within 14 days of the change. The filing fee is £13 (online) or £40 (paper) as of 2025.

Accounting

All companies must keep proper accounting records under section 386 of the Companies Act 2006. These records must:

·        Show and explain the company's transactions;

·        Disclose the financial position with reasonable accuracy at all times;

·        Enable preparation of financial statements in accordance with the law.

Records must include details of all monies received and expended, with justification, and the company’s assets and liabilities. They must be kept at the registered office or another designated place and be available for inspection by company officers.

If records are kept outside the UK, accounts and returns based on them must be sent to the UK and be available for inspection. Records must be retained for at least six years from the date of creation for private companies, per section 388(4) of the Companies Act 2006 and HMRC requirements.

Failure to comply with these requirements is an offence, with potential fines and, in cases of fraudulent failure, imprisonment of up to seven years under section 387.

UK Company Financial Statements

A company’s financial year corresponds to its accounting reference period. The first period begins on the date of incorporation and ends on the last day of the month in which the first anniversary falls (the accounting reference date, or ARD). Subsequent periods are 12 months, starting the day after the previous period’s end and ending on the ARD.

For example, a company incorporated on 7 September 2020 has a first period ending 30 September 2021, with the next period running from 1 October 2021 to 30 September 2022.

The ARD can be changed using Form AA01. The period can be shortened without restriction but can only be extended once every five years, up to a maximum of 18 months, unless the company is in administration.

Financial statements must be prepared:

·        In accordance with the Companies Act 2006 (using UK GAAP) or International Financial Reporting Standards (IFRS);

·        To give a true and fair view of the company’s assets, liabilities, financial position, and profit or loss.

Small companies submit a balance sheet and income statement. Micro-entities submit a condensed balance sheet. A company qualifies as small if it meets two or more of the following criteria in the relevant year (per The

Companies Act 2006 (Amendment of Part 7) Regulations 2023):

·        Turnover ≤ £12.6 million;

·        Balance sheet total ≤ £6.3 million;

·        Average number of employees ≤ 50.

A micro-entity meets two or more of:

·        Turnover ≤ £700,000;

·        Balance sheet total ≤ £350,000;

·        Average number of employees ≤ 10.

Dormant companies (those with no significant accounting transactions, excluding permitted transactions like share subscriptions or filing fees) file simplified “dormant accounts” using Form AA02. The same deadlines and penalties apply as for standard accounts.

Directors are responsible for preparing and approving financial statements, which must be sent to shareholders, debt instrument holders, and those entitled to receive notice of general meetings.

Under section 441 of the Companies Act 2006, financial statements must be filed with Companies House within 9 months of the ARD for private companies (6 months for public companies). For a first period exceeding 12 months, statements must be filed within 21 months from incorporation or 3 months from the ARD, whichever is later.

If unforeseen circumstances prevent timely filing, companies may apply to Companies House for an extension. Late filing is an offence, with directors facing fines up to £5,000 and daily penalties of up to £500 for ongoing delays. Civil penalties (as of 2025) include:

·        Up to 1 month late: £150;

·        1–3 months: £375;

·        3–6 months: £750;

·        Over 6 months: £1,500.

Failure to file may lead to the company being struck off the register and dissolved, with assets becoming state property.

Audit

Annual financial statements must be audited unless exempt under the Companies Act 2006. Small companies, micro-entities, and dormant companies are typically exempt. A company is dormant if it has no significant business operations (excluding transactions like payment of fees or share subscriptions) since incorporation or the start of the accounting period and meets small company criteria.

Taxes and Company Tax Returns

Corporation Tax

A company is UK resident for tax purposes if:

·        It is incorporated in the UK; or

·        Its central management and control is in the UK.

The corporation tax rate is 19% (as of 2025, pending any Budget changes). UK-resident companies pay tax on worldwide income, with relief for foreign taxes paid. Non-resident companies pay tax only on UK-sourced income.

The tax base includes business income and capital gains, with deductions for ordinary business expenses. Dividends received from UK or foreign companies are generally tax-exempt. Dividends paid by UK companies typically have no withholding tax. Interest and royalties paid abroad are subject to 20% withholding tax, unless reduced by a double tax treaty.

Legislation includes controlled foreign company (CFC) rules, transfer pricing rules, interest deduction limits, and a general anti-abuse rule (GAAR).

Companies are automatically registered for corporation tax upon incorporation, receiving a Unique Taxpayer Reference (UTR) from HMRC. A tax return must be filed within 12 months of the end of the tax period, even if no profits are made. If profits are ≤ £1.5 million, tax is due 9 months and 1 day after the tax period’s end. For first periods exceeding 12 months, two tax returns may be required.

Value Added Tax (VAT)

The standard VAT rate is 20%, with reduced rates of 5% or 0% for specific goods and services. VAT registration is mandatory if taxable turnover exceeds £90,000 in the past 12 months or is expected to exceed this in the next 30 days. Voluntary registration is permitted.

VAT-registered companies file VAT Returns quarterly, even if no VAT is payable or refundable.

Payroll Taxes

Companies with employees must register as employers and withhold Pay As You Earn (PAYE) income tax and National Insurance Contributions (NICs).

In this article, we explored the financial reporting, tax, and audit obligations of private limited companies. The next article will cover taxes for limited liability partnerships and ordinary partnerships.