Limited company accounts

Limited Company Accounts

Types of Limited Companies

  • Limited companies can be broadly classified into two types: private limited companies (Ltd) and public limited companies (PLC).

  • A private limited company is generally smaller, and its shares are not available for public purchase.

  • A public limited company, on the other hand, can sell its shares on the stock exchange, opening up more avenues for capital generation.

Components of Limited Company Accounts

  • Limited company accounts are made up of several key components that include the Balance Sheet, Profit and Loss Account, Directors’ Report, Auditors’ Report and Notes to the Accounts.

  • The Balance Sheet provides a snapshot of a company’s financial position at a particular point in time.

  • The Profit and Loss Account details a company’s revenue, costs and profit (or loss) over a specific duration.

  • The Directors’ Report offers an overview of the company’s operations, future outlook and any significant events occurring during the accounting period.

  • The Auditors’ Report provides an independent appraisal of the company’s financial statements to ensure they present a true and fair view of the company’s financial standing.

  • The Notes to the Accounts provide additional information to support the data in the financial statements.

Statutory Regulations

  • Limited companies are bound by statutory regulations. They must prepare and present their accounts according to the Companies Act 2006 and the accounting standards issued by the Financial Reporting Council.

FFRS and IFRS

  • The financial statements of limited companies are prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) or International Financial Reporting Standards (IFRS).

  • Based on specific conditions, small and medium-sized enterprises (SMEs) can choose between FRS 102 (part of UK GAAP) and full IFRS.

Benefits of Limited Liability

  • For both types of limited companies, a key advantage is that shareholders have limited liability.

  • This concept means that shareholders’ losses relating to the company are limited to the capital they originally invested. Personal assets of the shareholders are protected, thereby limiting their potential financial risk.

Audit Requirement

  • A statutory audit is an important element of financial reporting for limited companies.

  • It ensures the accuracy and integrity of the financial statements, building trust among all stakeholders including shareholders, creditors and regulatory bodies.

  • It is worth noting that certain small companies may be exempt from audit requirements, subject to specific criteria.

Corporate Tax

  • Limited companies are subject to corporate tax on their profits. It is the responsibility of these companies to calculate and pay the tax to HM Revenue and Customs (HMRC).

  • The payment deadline for corporate tax is nine months and one day after the end of the accounting period.

  • Any failure to meet tax obligations can lead to fines, penalties, and may also damage the company’s reputation.