The new penalty regime for annual accounts filed late at Companies House comes into effect on 1 February 2009. As made clear on the numerous billboards advertising this change, the penalties for late filing are being increased.
There are three main elements to the changes:
· the penalties (which increase the later the accounts are filed) will be increased by 50% from the levels last set in 1992;
· the penalties for accounts filed more than one month late will increase at a faster rate; and
· the penalties will be doubled for any company that has filed its accounts late the previous year where the previous financial year commenced on or after 6 April 2008.
But that is not all: with the implementation last year of Part 15 of the Companies Act 2006, filing deadlines have been reduced by a month in relation to financial years starting on or after 6 April 2008.
Background
Parliament introduced the late filing penalty regime in 1992 to encourage directors to file accounts on time. Before 1992, fewer than 60% of companies filed accounts on time.
Recent evidence suggests that UK companies are increasingly struggling to file their accounts at Companies House on time, with an increase of 25% in the number of companies filing late for the four-year period to March 2008, and over 230,000 companies reportedly missing their deadlines last year. Over a quarter of companies that file accounts late have also filed late in the previous year, and the new double penalty provisions are aimed at deterring repeated non-compliance.
Penalties
Under the Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008 (SI 2008/497), with effect from 1 February 2009 any company filing accounts late at Companies House will be subject to penalties as follows:
| Lateness of Delivery | Private Company (or LLP) | Public Company |
| Not more than 1 month late | £150 | £750 |
| More than 1 month but not more than 3 months late | £375 | £1,500 |
| More than 3 months but not more than 6 months late | £750 | £3,000 |
| More than 6 months late | £1,500 | £7,500 |
This compares to the penalties under the existing regime (which apply up to 31 January 2009), which are:
| Lateness of Delivery | Private Company (or LLP) | Public Company |
| Not more than 3 months late | £100 | £500 |
| More than 3 months but not more than 6 months late | £250 | £1,000 |
| More than 6 months but not more than 12 months late | £500 | £2,000 |
| More than 12 months late | £1,000 | £5,000 |
The increased penalties will apply from 1 February 2009 to all accounts filed late for any financial period, whether commencing before, on or after that date.
The Registrar has very limited discretion to not collect a penalty, and the discretion is exercised only in exceptional cases. It cannot be used for reasons such as accounts being delayed in the post and arriving a day or two late. There is no special dispensation for companies that are not trading, or for residents’ management companies or for charities. Companies House recommends that companies file accounts well in advance of the deadline and check that they have actually been received.
Shorter filing deadlines
Under Part 15 of the Companies Act 2006, the deadlines for filing accounts for financial years commencing on and after 6 April 2008 were shortened by one month, to six months from the end of the relevant financial period for public companies and nine months for private companies, though different deadlines may apply where the accounts relate to the company’s first financial period or where the accounting reference date has been changed during the relevant financial period.
Public companies with securities listed on the London Stock Exchange’s Main Market (but not AIM) are required under the Disclosure and Transparency Rules to publish their accounts within four months of the financial year-end.
Directors’ personal liability
In addition to penalties to which the company may be subject, late filing of accounts may also give rise to personal liability for the directors of the company.
Under the Companies Act 2006, failure to deliver accounts on time is a criminal offence. Directors serving at the time of the missed deadline may be prosecuted and subject personally to a fine of up to £5,000 and, for continued contravention, a daily default fine of £500.
There are also powers under the Act for the court to order the directors to comply with their filing duties.
Failure to deliver the company’s accounts on time could also amount to a breach of the directors’ duties to promote the success of the company or exercise reasonable care, skill and diligence, potentially giving rise to a claim by the company. The Company Directors Disqualification Act 1986 also sets out various provisions under which a failure to comply with companies legislation in respect of the content and filing of accounts could lead to directors being disqualified from being a director or concerned in the management of a company for up to five years.
Other consequences of late filing
Particularly in the present economic climate, filing accounts late may also have serious consequences for the company’s ongoing trading activities and access to finance, since it might trigger defaults under financing or credit agreements and enable lenders to withdraw committed facilities or overdrafts. In some cases, this may well create a downward spiral of confidence in the business.
Trade creditors and credit insurance underwriters are reported as treating missed filing deadlines as a warning sign as to the financial position of the debtor or business concerned, and the withdrawal of key supplies or credit insurance have been critical features of a number of recent high profile business failures and insolvencies.
There are a various reasons why accounts are not filed on time, many of which may not be grounds for undue concern. Late filing may simply be due to a shortfall in resources or time. Numerous recent changes to relevant legislation and accounting standards have no doubt caused the preparation and audit of accounts to become a more arduous task, and many finance directors and their teams have understandably had their hands full recently.
One factor that has been reported by directors, auditors and financial advisers is the key “going concern” judgement and statement required in UK annual accounts. In view of current difficulties in securing finance and, in many sectors, significant falls in revenue and trading prospects, directors and auditors are increasingly concerned about their liabilities in signing off accounts on a “going concern” basis, especially where the business requires further funding or needs to refinance debt in the near future.
The “going concern” issue has now become the subject of much debate and review by directors and auditors. In a recent open letter to the Financial Times from the chief executives of the various UK accounting supervisory bodies (including the ICAEW and ACCA), directors were urged to begin preparation of 2008 financial statements and discussions with auditors earlier than normal in order for any such issues to be addressed in good time ahead of the relevant filing deadlines.
Limited liability partnerships
The increased penalties will also apply to late filings by limited liability partnerships, which for the purposes of the new penalties are treated as private companies.
Under corresponding changes made to the regulations for LLPs in connection with the Companies Act 2006, the time period for filing accounts for financial periods were also shortened by one month from the previous deadline to nine months, but only with effect to financial periods commencing on or after 1 October 2008.
In addition to penalties to which the LLP may be subject, late filing of accounts may also give rise to personal liability for the LLP’s designated members (who are statutorily responsible for compliance with filing requirements). Failure to deliver accounts on time is a criminal offence for which the designated members serving when the deadline is missed may be prosecuted and subject personally to a fine of up to £5,000 and, for continued contravention, a daily default fine of £500. There are also powers for the court to order them to comply with their filing duties.
Companies House guidelines on filing of accounts can be found by clicking here.
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