With so much uncertainty it may be difficult to finalise accounts and get an audit signed off.
If you have an imminent filing deadline there are steps you can take to defer filing your accounts at Companies House. There are a lot of valid reasons why deferring may be the sensible choice, however, you must be aware of the consequences, some of which are outlined below.
Companies House extension
If a company applies for an extension before the filing deadline due to coronavirus, then Companies House will provide an automatic three-month extension. However, companies that have already extended their filing deadline, or shortened their accounting reference period, may not be eligible for an extension as the total filing period cannot be longer than 12 months.
What if I can’t complete my year-end close down?
If you cannot complete your year-end close down process at 31 March 2020 (eg your key finance staff have other priorities at year end; or you need to defer the stocktake without any alternatives) you may want to consider changing your year-end. You can legally extend your year-end up to an 18-month accounting period as long as it has not been extended in last five years.
There is no need to lodge the paperwork changing your year-end until you have decided exactly what date to use. However, you should still seek to prepare accounts as quickly as possible and speak to your auditor to see how this will affect your audit process.
There are tax compliance and payment consequences if you prepare accounts for a long period. A corporation tax return can only cover a period of 12 months, so you will need to:
- file two tax returns;
- consider the apportionment of trading and capital profits; and
- understand the timing of payments related to those tax returns.
You will also need to consider:
- the tax payment deadline (which the company could choose to not pay);
- getting the accounts prepared in a shorter time frame to allow consideration of those tax payments which may need to be made within three months of the new year end; and
- offsetting any losses created by extending the accounting date.
The longer the extension, the shorter the period of time available to prepare the accounts to a sufficient degree to calculate a tax payment. For example, if accounts are prepared for an 18-month period, then there will be two tax returns, one for 12 months and one for 6 months.
Potential consequences of deferring
1. Impacting credit ratings
So far there has been no communication from credit rating agencies that their algorithms will be changed to account for the unprecedented circumstances. It is worth noting that if your accounts are qualified by the auditors due to complications from coronavirus then this could also impact your rating, as could a delay in lodging accounts.
2. Breaching loan covenants
Communication is absolutely key. We have prepared advice on engaging with your lenders. This details their expectations, recent reactions, government loan schemes and practical considerations.
3. Breaching performance related pay, bonus or other stakeholder agreements
A lot will come down to the detail in these agreements. These need to be reviewed urgently to see what measures can or cannot be taken. For example, we have seen clients convert cash bonus schemes to share option schemes which then have different accounting implications. Again, communication with the various stakeholders is vital.
4. Impacting on the payment of dividends
Whilst you may be able to afford to pay dividends this month or next, directors should consider their fiduciary duties to the company and discuss with shareholders if these can be deferred.
5. Filing two tax returns and more complex payment dates if you extend your accounting period beyond 12 months.
How we can help
If you are considering deferring your year-end, or making an application to extend your filing deadline, please contact our accounting or audit teams.
We can offer a range of services as outlined on our coronavirus hub including
- assisting with drafting figures as a baseline for forecasts; and
- preparing your accounts remotely for business or lending decisions.
If you require any help or further information, please contact