Companies House Independent Adjudicators Report highlights issues on late filing of accounts
The latest Companies House Independent Adjudicators Report highlights some issues arising from late filing of accounts. In this article we look at the filing regime and discover what the Adjudicators have to say about unacceptable excuses.
Accounts due dates
All companies must send their accounts and reports to Companies House every year. If the first accounts for private companies or LLPs cover a period of more than 12 months, they must be delivered to Companies House within 21 months of the date of incorporation, or three months from the accounting reference date - whichever is longer.
For public companies, if the first accounts cover a period of more than 12 months, they must be delivered to Companies House within 18 months of the date of incorporation, or three months from the accounting reference date - whichever is longer.
For subsequent accounts, a private company or LLP has nine months from the end of the accounting reference period to deliver its accounts. A public company has six months.
In cases where the accounting reference period changes the filing time may be reduced.
Filing on time and avoiding a penalty
It clearly makes sense to take steps to ensure that accounts are filed prior to the due date. The following steps should help achieve this:
- Register for email reminders from Companies House. On 9 November 2020 a letter was sent to all companies not registered for e-reminders to inform them that paper reminders will no longer be issued and advising them to sign up to the e-reminder service.
- Allow enough time to make sure the accounts reach Companies House within the deadline.
- If delivery is by post, make sure to use guaranteed methods of delivery, first class post does not guarantee next day delivery.
- Online filing is secure, fast, and the recommended method. At this time, LLPs cannot file accounts online.
- If in any doubts about the deadline, use the Companies House service to check when your accounts are due.
- Keep accounting records digitally and try to use MTD compliant cloud software which will prevent any loss of data or security access issues and can be good for business performance management. Check with your accountant to ascertain if they use cloud based statutory accounts software.
Extension of accounts filing date
An extension will only be granted if the reasons are exceptional. You can apply for more time to file your accounts if your filing deadline has not passed. If accounts are late, Companies House automatically issue a penalty notice to the registered office address.
Late filing penalties charges
Where no extension of accounting filing date has been granted and accounts are filed after the due date Companies House will issue penalties. The current level of penalties varies from £150 to £7,500 with penalties doubled if accounts are filed late in two successive financial years. Failing to pay late filing penalty can result in enforcement proceedings.
In addition to the civil penalties payable by the company, it is criminal offence not to file accounts and directors or LLP designated members could be personally fined in the criminal courts.
Appealing a penalty – is it only an excuse?
Penalties can be appealed but are only likely be successful if it can be shown that there were exceptional circumstances and unforeseen events happened at a critical time. Appeals can be filed online and Companies House will suspend recovery action while considering the appeal.
The 2020-21 Companies House Independent Adjudicators’ Report goes into some detail about appeals that they have considered. The year under consideration was impacted by COVID and therefore some of the statistics were substantially different from the ‘norm’. Over a quarter of all late filing penalties issued were appealed (up by 10%) with the internal Companies House appeal process allowing around 9% of appeals (up from around 2%). Less than 0.5% of the rejected appeals ended up with the Adjudicators (down from around 2%).
The Adjudicators noted that dormant companies and not for profit, charities and community interest companies made up a disproportionate number of appeals commenting that “these types of company often fail to appreciate their responsibilities, or they are not foremost in the directors’ minds.”
Common reasons for appeals being submitted were noted as:
- The company is dormant. Some directors believe that because HMRC may not require dormant companies to file accounts, the same applies to Companies House, failing to appreciate the fundamental difference in the purpose of the requirement.
- Company cannot afford to pay.
- Company accountant was ill, or reliance was placed on their accountant. The legal responsibility for filing accounts rests with the director (or directors) of a company and not any third party, and such appeals are usually rejected. One appeal was upheld on the grounds that the company’s long term previously reliable sole practitioner accountant had become ill immediately prior to the date of the filing deadline and did not contact the director to let them know.
- Health or mental illness of director. Where a company has more than one director, Companies House expects the other director(s) to step in, as all directors have equal responsibility for ensuring that accounts are filed on time. An example of an exception would be where the second director is a spouse of the director suffering serious ill health and is seriously affected by the situation. Where an illness or injury is long standing or chronic, Companies House expects the director(s) to have contingency plans to ensure the timely filing of the accounts.
- Did not get email reminders from Companies House.
- Accounts were delayed or lost in the post. While normally these would not be exceptional circumstances one appeal was allowed where Royal Mail had taken 13 days to deliver the posted accounts towards the beginning of the pandemic which was taken as being indicative of staffing issues related to COVID.
- Where the late filing of the accounts was directly attributed to COVID-19, generally these appeals were automatically allowed by Companies House. Where the pandemic was a ground for appeal but was not considered by Companies House in earlier stages to have caused the late filing, these types of appeal tended to make general statements on the wider impact of COVID-19 or to argue that there should be latitude because of the general situation, irrespective of any specific impact on the company. The Adjudicators did not uphold any appeals on these grounds.
The Independent Adjudicators Report also commented on recommendations made in relation to Companies House service and process issues with a view to improving and all of which have now been implemented. A few crucial ones are as follows:
- The Adjudicator recommended that Companies House consider creating a vexatious complainant policy and procedure to enable Companies House to deal with individuals who meet the definition of persistent or vexatious complainants.
- Companies House should provide information to customers on to how to escalate a complaint and how to contact the Independent Adjudicators.
- Complainants should be invited to submit further information or representations when their complaint is referred to the Independent Adjudicators.
- The Adjudicators and the Late Filing Penalty Managers should be kept up to date on changes to Companies House processes which may impact on consideration of appeals or complaints.