Requirements to maintain accounting records

It is a legal duty of every company to maintain sufficient books and records of their company to ensure that each director and manager has an up to date financial picture at any given time, to enable them to

• properly fulfil their fiduciary duties to act in the best interests of the company, and
• if moving towards insolvency, to the creditors, at all times.

The accounts position should influence all decisions that are made by the company. For more details about this – see our directors’ duties page.

What information is required to be maintained?

The directors of every company and the members of every LLP are required by law to prepare accounts for each financial year, being full statutory annual accounts, and a company tax return.

Accounts must be filed with Companies House and the tax return will go to Her Majesty’s Revenue and Customs (HMRC). Financial statements must show a true and fair view of the income and expenditure, financial position and cashflows of the company for the relevant financial reporting period. Failure to file either of these or to file late can incur financial penalties.

Records should be kept for a minimum of six years from the end of the last financial year that they relate to or longer if appropriate.

What accounting records are required to be kept?

Companies listed on the Stock Exchange or AIM must provide and maintain financial reports specifically prescribed for them by regulations. Private listed companies have a choice on how to present their accounts under company legislation. A company should consult their accountant to consider the best way of presenting accounts for their particular company. At Francis Wilks & Jones we work with a wide range of accountants and external experts and can provide you with recommendations if you require. For more information see: Specialists.

Companies should maintain the following as a minimum:

• a profit and loss account – setting out the income and expenditure of the company and overall profit or loss for the period.
• a balance sheet/statement – showing the assets, liabilities, equity and reserves of the company at the end of its financial reporting period. The balance sheet is particularly important as it is a picture of the company’s solvency at any given point.
• a statement of cash flow – for any company, the up to date cash flow position is essential so directors are fully aware of the company’s solvency position at any given time and can react appropriately if necessary.

For the Annual and Tax Returns, you should keep details/proof of the information contained in the returns. For example: receipts and petty cash books, orders and delivery notes plus invoices, contracts, sales books and till rolls. All assets owned and all debts the company owes or is owed. Relevant documents for example bank statements or correspondence. Basically, paper records of everything in or out or owned.

Company records

Company records must also be maintained recording all of the decisions of the directors and the members. Company records are normally kept at the company’s registered office address. If this isn’t the case (for example if they are kept at your accountant’s office), then you should notify Companies House of this. A company must keep details of:-

• all directors, shareholders and company secretaries.
• the results of any shareholder votes and resolutions.
• debentures, including when they are repayable and to whom.
• any indemnities raised by the company.
• all share transactions in the company.
• all loans and mortgages secured against company assets.

It is also necessary to keep a register of people with significant control (PSC). This includes:-

• any person who has more than 25% shares or voting rights in the company.
• any person who can appoint or remove a majority of directors.
• any person who can influence or control your company.

What happens if I don’t maintain sufficient company records?

Failure to maintain accounting records can have a significant affect on the company in a number of ways:

• without well maintained and up to date accounts, the directors will not have sufficient information to understand the company’s financial position at any one time, which in turn can negatively affect decision making. It is imperative that all directors, no matter what their individual responsibility, are aware of the company’s financial position at any given time, so that they don’t undertake transactions harmful to the company;
• If you fail to file your company accounts on an annual basis on time, then the company can be fined, or the company can even be removed from the Company Register;
• if the company later runs into financial difficulties and enters a formal insolvency event, then the failure to maintain sufficient company accounts can be a particularly serious matter for the directors personally; Failure to maintain adequate books and records is a frequent allegation in directors’ disqualification proceedings. A director can be disqualified as a company director for anywhere between two and fifteen years depending on the allegations found against them.
• It is vital for directors to maintain decision making records such as board minutes and resolutions, particularly in times of financial difficulties. If a director can show that the decision they took at the time was reasonable (albeit with the benefit of hindsight a different decision might have been better) then they are likely to be able to defend or mitigate any action bought against them by a later liquidator or administrator, or by the government in directors’ disqualification proceedings.

At Francis Wilks & Jones, our team of expert lawyers frequently advise directors on the requirements for company records and guide them through the process. Taking expert advice at an early stage can keep down costs and prevent issues further down the line for directors and shareholders, and the company itself. Please call any member of our team for expert free consultation. Alternatively email us with your enquiry and we will call you back at a time convenient to you.