“Annual return vs Annual accounts” is a confusing statement for many business owners, especially those who are new to company management. The annual return and the annual reports are filings that consider two major legal obligations and essentials for the upliftment and standing of the company in the UK. Both are major things that are required to ensure company compliance and growth. ‘Annual Return’ is also known as a confirmation statement that informs the company’s overall performance, while ‘Annual Accounts’ show financial performances. There are key similarities and differences presented when we refer to “Annual Account vs. Annual Return.”
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What is the Difference between an Annual Return and an Annual Account?
Annual returns and annual accounts both have different purposes and prove a challenge for the company to navigate. Before jumping into the Annual Account vs. Annual Return, let’s understand both of them separately to get basic information that is important to know for running the company smoothly.
What are Annual Accounts?
Annual accounts are a comprehensive report of the company that can provide an overview of the financial activities throughout the year. Annual accounts not only establish the trust of the stakeholders but also aid HMRC in the assessment of obligations regarding tax. At the end of the financial year, company financial reports are used in creating the annual accounts called statutory accounts for private limited companies.
The copies of the annual accounts are sent to the Companies House, HM Revenue and Customs (HMRC), stakeholders, or other company meeting candidates. In the case of a very small company, simpler (‘abridged’) accounts are sent. Accounting standards that must be followed in statutory accounts are International Financial Reporting Standards and New UK Generally Accepted Accounting Practice.
Components of Annual Accounts
As every company prepares annual accounts at the end of the financial year, understanding the basic components is important. All the company’s annual accounts contain the sheet, income statement, cash flow statement, and company’s equity statement. However, these components vary according to the size of the company, as a small company might miss these components for simplifying the report.
The overview of the basic components of the annual accounts is the following:
- Balance Sheet: demonstrates the owes and owns of the company at specified dates during the financial year. It represents the assets, liabilities, and company’s equity by ensuring the company’s finances.
- Profit and Loss Account/Income Statement: highlights whether the company made a profit or loss.
- Cash Flow Statement: It shows the flows of cash in or out of the company, such as cash spent on loans, investments, or earned cash.
- Company’s equity changes statement: It helps in analyzing the changes regarding earning, payment, and ownership.
- Additional notes: They are helpful in simplifying complex figures, financial statements, and policies.
What is an Annual Return (Confirmation Statement)?
Annual Return is replaced by the work Confirmational Stements since 2016. It is a snapshot of non-financial information about your company structure. This document is provided by all registered companies to the company house. It provides public records and relevant company details, including company name, address, shareholders, etc..
Additionally, HMRC does not demand submission of annual returns; instead, this document is required by the company for up-to-date official company information. The annual return must be filled out on a yearly basis but it is up to you if you initiate some changes You can submit it many times in the year to the Companies House. Basically, to provide up-to-date company information to the company House is the aim of the annul returns. If it comes to deadlines, the first return is provided to the company within 28 days of the company starting.
Components of Annual Return
To fill out the annual return completely is a legal responsibility. Some sections you will mention in your annual reports are the following:
- Company Information: In this section, you will mention the registered name of the business, the official address, and the company number. SIC code is also mentioned that shows type of business activity.
- Directors’ Details: You will mention the names of company directors and their addresses.
- Secretaries’ Details: In this component, secretaries’ details are mentioned if applicable.
- Statement of Capital: In this component, you will mention the number of shares, paid or unpaid shares (applicable if the company has shares).
- Shareholder details: You will mention name, address, and types of stakeholder holding (applicable if the company has shares).
- CIC Reports: Must mention how the company is contributing to the community only in case of Community Interest Company.
Annual Account vs Annual Return
Annula returns and annual reports are two different legal documents that are used for different purposes for companies. Their comparison can further clarify the basic similarities and differences in both of them.
Similarities: Annual Account vs Annual Return
- Annual accounts and annual returns are both legal documents that a company has to fill out for making progress.
- Both reports provide company information and details.
- Annual accounts and annual returns are submitted annually to the company houses or HMRC.
Differences: Annual Account vs Annual Return
- Purpose: Annual accounts provide company financial performance, while annual returns provide company internal structure.
- Components: Annual accounts are different from the annual return because of different components, as the annual account presents information about the balance sheet and income statement. On the other hand, the annual return includes information about directors, shareholders, shares, e.t.c.
- Submission date: Both are submitted once a year, but the annual return has a set date.
- Submitted to: Annual accounts are submitted to the HMRC and Companies House, while annual returns are only submitted to the Company Houses.
Conclusion
In conclusion, discrimination between the annual accounts and an annual return is very important for business owners, as both are legal filings. The purpose of both documents is also different. Hence, to maintain compliance with the company, the concept of the “Annual Account vs. Annual Return” should be clear. Moreover, their understanding not only prevents penalties from “Companies House” and ’HMRC” but also proves significantly helpful to stand the company and build trust. The legal complication risk is also eliminated, and the transparency and trustworthy reputation are built by emphasizing these two important filings.
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Disclaimer: All the information provided in this article on annual return vs annual accounts, including all the texts and graphics, is general in nature. It does not intend to disregard any of professional advice.