Allow yourself to delve into the world of accounting in the UK where you’d likely hear of annual statements, also known as annual accounts or financial statements. It is important to understand what an annual statement is and how these annual reports are a fundamental part of your business or company’s financial health. In this comprehensive guide, we'll break down everything you need to know about annual statements, including what they are, what they contain, and how to prepare them.
What is an annual statement?
An annual statement is a report of your finances that your business must prepare every year. This report will provide an overview of your company’s financial health by laying out a summary of its income, expenses, assets and liabilities. Your company or business is required to file its annual statement with Companies House, which is the official register of businesses under the UK government.
What is included in an annual statement?
Here is what your annual statement would typically include:
Company Information: In an annual statement, your company information is mentioned like the name of the director, company registration number and registered office address.
Director’s Report: In this report, the director presents his/her/their report and accounts at year end.
A Balance Sheet: A balance sheet is an overview of your company’s financial position at a specific point in time. A balance sheet helps in summarising your company's assets, liabilities, and equity.
Income Statement: An income statement, also known as a profit and loss account, gives a summary of your company’s revenues, expenses, and profits or losses over a specific time period. This is how we put it:
- Turnover
- Direct cost
- Staff costs
- Depreciation and other amounts written off assets
- Other charges
- Profit/Loss for the financial year
If your company is in profit at the end of your financial year, you will have to pay 19% corporation tax on your profit to HMRC and if you fail to pay on time, penalties will apply.
Cash Flow Statement: A cash flow statement gives you a summary of your company’s inflows and outflows of cash over a specific time period.
Notes to the Financial Statements: These notes are used for additional information related to your company’s financial position like accounting policies, contingent liabilities, and any other event that could impact your company’s financial health.
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Best practices for crafting effective annual statements
Clarity is Key: It is important to be clear in the annual statement; the language used must be clear and easy to understand.
Visual Representation: Your annual statement should be visually attractive; the use of charts and graphs make it easy to grasp by the readers.
Timely Submission: Keeping in mind the deadlines for filing annual statements and annual confirmation statements to avoid fines and maintain good relations with regulatory authorities.
Preparing your annual statement
To prepare your annual statement, first you need to file an annual confirmation statement with Companies House; which confirms whether your company's information, like its registered address and directors, is up to date or not.
Preparing your financial statement can take a lot of your time and it is a complex process, especially if you do not know anything about accounting principles. It is important that your annual statement is correct and fulfils legal requirements. This is why you should work with a qualified accountant or an accountancy firm that provides the best annual accounts scheme.
