Are you happy to disclose your company profits to family, friends, customers, suppliers, employees and competitors? Or do you believe this information should be private? If you prefer the latter your accountants must file abridged accounts.
Unfortunately not all accountants do file abridged accounts. Instead they choose to file full accounts for their clients. Full accounts contain a lot of unwanted and unnecessary disclosures some of which contain sensitive information.
We therefore believe this to be a mistake. Almost 100% of business owners, when given the option, tell us they prefer to file the least amount of disclosures legally required.
Remember that the accounts you file are available on the public record. Anyone with internet access can view them. So if you don’t want your accounts to show sensitive information then you should opt for abridged accounts.
The rules below are applicable to small limited companies. See our blog on small company limits.
Old filing rules
Prior to 2016 under the old filing rules it was common practice to prepare 2 sets of accounts. There was a full set of accounts for the client and HMRC, then there was another set of abbreviated accounts for Companies House.
The abbreviated accounts contained very little information with just a balance sheet and a few disclosure notes. Therefore clients were happy with this arrangement as they weren’t disclosing sensitive information to the public.
New filing rules
From 2016 the filing rules changed. You can no longer file abbreviated accounts with Companies House.
However all is not lost as it doesn’t mean that you must file full accounts either.
What you must do is prepare just 1 set of accounts. The same set of accounts which are prepared for the client must be the same as those prepared for Companies House.
The only difference between the client copy and the Companies House copy is that you can remove the profit and loss pages from the Companies House version. This is known as filleted accounts.
This still leaves you with a choice of whether to prepare full accounts or abridged accounts. Both of these are explained below.
These accounts as the name suggests show everything.
If you do choose to prepare full accounts the Companies House filed version can be filleted. This basically means that the profit and loss pages are removed. Which is great as most business owners do not want to disclose their profit and loss to the public.
However the full accounts even when they are filleted still show sensitive information. Crucially they must still contain detailed balance sheet notes including a breakdown of fixed assets, debtors and creditors. Included within the creditors breakdown is the corporation tax liability.
Why is this important? If you disclose your corporation tax liability anyone can use this figure to estimate your net profit. The corporation tax rate in the UK is currently 19%.
So, if you are showing a corporation tax liability of say £20,000 it means that your net profit will be in the region of just in excess of £100,000. Also if you are showing a tax liability of £nil you are indicating that the company might have made a loss. This could put off 3rd parties from dealing with the company.
Most clients that we speak with do not want to give any indication at all to what their net profit is.
This is where abridged accounts prove so useful.
Preparing abridged accounts removes the requirement to include the breakdown of fixed assets, debtors and creditors. Without a breakdown of creditors there is no corporation tax figure disclosed. Therefore you can’t estimate the net profit with abridged accounts.
Crucially abridged accounts can also be filleted. This means that the profit and loss can be removed from the Companies House version.
So, under this option, Companies House will receive a balance sheet with reduced disclosures and no profit and loss pages.
Any disadvantages of filing abridged accounts?
In order to prepare abridged accounts all shareholders must agree. And it must be agreed every year. It isn’t a majority vote. It must be every shareholder.
The company with a single director who is a 100% shareholder won’t have a problem with this. But a company with lots of shareholders, maybe a minority shareholder who lives abroad or is difficult to contact may encounter problems.
Another minor downside is if you file abridged accounts, the accounts that you receive are also abridged. Remember that the clients version is the same as the Companies House version. The only difference being the removable of the profit and loss which is known as filleted accounts. So if you don’t want a breakdown of fixed assets, debtors or creditors in the Companies House version then it won’t be in your version of the accounts either. Obviously the accountant has the breakdown so it can still be provided as a supplement. For this reason we see this as a minor inconvenience.
Why don’t all accountants file abridged accounts?
In truth we don’t know. Possibly they aren’t aware that this option is available? Maybe they haven’t considered the impact of disclosing sensitive information such as the corporation tax liability? Possibly it is too difficult or impractical for them to learn both full accounts and abridged accounts regulations?
You will need to ask your accountant. For us the benefits of abridged accounts outweigh the minor negatives.
Summary of the information
You have the option to prepare full accounts or abridged accounts:
Full accounts – show all disclosures including a breakdown of balance sheet items
Abridged accounts – shows less disclosures and excludes a breakdown of balance sheet items
Filleted accounts – both the full accounts and the abridged accounts can be filleted. This is where the Companies House filed version has the profit and loss account information removed.
How to check if you’ve filed full or abridged accounts?
Once you are viewing your accounts the first thing to check is have they been filleted? In other words do they show the profit and loss account? The profit and loss is always the last few pages of the accounts.
If the profit and loss is showing and you are a small company and you didn’t want it showing, then we would seriously recommend changing accountants. The default position for every accountant should be to not file the profit and loss account. Unless it was either legally required or specifically requested by the client. There is no excuse for an oversight like this. Providing sensitive information of this nature to a competitor could be jeopardising your business.
Now to check if they are full accounts or abridged accounts. One way to do this is to go to the balance sheet. If abridged accounts have been filed it should say abridged balance sheet. Alternatively after the balance sheet, abridged accounts must state that ‘all the members have consented to the preparation of an abridged… Companies Act 2006.’ And finally the crucial factor in abridged accounts is that there won’t be a detailed breakdown of fixed assets, debtors or creditors.
Conclusion on abridged accounts
It isn’t incorrect to file full accounts. However in our experience when clients are made aware of the options they always choose to file abridged accounts.
Remember that it is the Directors responsibility to file the accounts. So if you have filed full accounts were you aware that you had? Or did your accountant make this decision for you? Had you been given the choice what would you have opted for?
If you want to deal with an accountant who understands that you don’t want to file sensitive information and will be pro-active by informing you in advance of your filing options then why not contact us or see our why-us page for more information.
DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer