Understanding the figures in your year-end accounts

What are year-end accounts?

Your year-end accounts are a set of financial statements that provide a formal summary of your company's financial activities over its accounting period, typically 12 months. For limited companies, these are statutory accounts that must be prepared and filed with Companies House and HM Revenue & Customs (HMRC).

These accounts are more than just a legal requirement; they are a vital tool for understanding your business's performance, making informed decisions, and demonstrating financial stability to lenders or investors.

Key components of your year-end accounts

For a small limited company, your year-end accounts will typically include:

• Balance Sheet: This is a snapshot of your company's financial position at a specific point in time (your year-end date). It shows what your company owns (assets), what it owes (liabilities), and the owners' equity.
• Profit and Loss Account (P&L): Also known as an Income Statement, this report summarises your company's revenues, costs, and expenses over the accounting period, showing whether your business made a profit or a loss. Micro-entities may not need to file their P&L publicly.
• Notes to the Accounts: These provide additional detail and explanations for the figures presented in the Balance Sheet and Profit and Loss Account, including accounting policies and other relevant information.
• Directors' Report: This report gives an overview of the company's activities and financial performance during the year. Micro-entities are exempt from needing to file a Directors' Report.

Understanding your profit and Corporation Tax liability

One of the most scrutinised figures in your accounts is your profit, as this directly impacts your Corporation Tax liability.

How profit is calculated

Your profit is generally calculated as your total income (revenue) minus your allowable business expenses. It's important to distinguish between accounting profit (as shown in your P&L) and taxable profit (the figure HMRC uses to calculate Corporation Tax), as some accounting expenses may not be allowable for tax relief. Your accountant will make these adjustments when preparing your Company Tax Return (CT600).

Corporation Tax rates for 2026/27

For the 2026/27 tax year, Corporation Tax rates remain tiered:

• Small Profits Rate: Companies with profits of £50,000 or less pay 19%.
• Main Rate: Companies with profits over £250,000 pay 25%.
• Marginal Relief: If your company's profits fall between £50,001 and £250,000, you will pay tax at the main rate, reduced by marginal relief. This creates a gradual increase in the effective tax rate between 19% and 25%.

If your company is associated with other companies under common control, these profit thresholds are divided by the number of associated companies.

Reconciliations and adjustments

Your accountant will perform various reconciliations to ensure the accuracy of your accounts. This involves comparing internal records with external statements (like bank statements) to identify and resolve any discrepancies.

Sometimes, you might see "adjustments" in your accounts or tax computations. These are often made to ensure the figures comply with accounting standards or tax rules. For example, an "IRIS BT adjustment" (referring to IRIS Business Tax software) typically indicates a manual adjustment made by your accountant within the tax software to correct or refine figures for the tax computation, without necessarily altering the underlying accounting records. These adjustments are crucial for ensuring your tax return is accurate and compliant.

Signing and filing your accounts

Once your accounts are prepared, they need to be approved and signed by a director. The balance sheet must be signed by a director and show their printed name. Your accountant will confirm the correct document heading and signatory requirements.

The deadline for filing your annual accounts with Companies House is typically nine months after your company's accounting reference date. For your first accounts, the deadline is 21 months from the date of incorporation or three months from the accounting reference date, whichever is longer. Missing these deadlines can result in automatic penalties.

Common mistakes

• Not understanding the difference between accounting profit and taxable profit: These are not always the same, leading to confusion about Corporation Tax.
• Ignoring notes to the accounts: The notes provide crucial context and detail that explain the main figures.
• Missing filing deadlines: Companies House and HMRC impose penalties for late filing of accounts and Company Tax Returns.
• Not asking questions: Your accountant is there to help you understand your accounts. Don't hesitate to ask for clarification on anything you don't understand.