Revised 1 July 2020
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, including taking advantage of an automatically applied three-month extension. 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
The Corporate Insolvency and Governance Act 2020 received royal asset on 25 June 2020, and related secondary legislation came into force on 27 June 2020, providing a three-month extension to the accounts filing deadline for all eligible companies and other types of businesses (eg LLPs). Companies House will automatically reflect these changes where the filing deadline falls between 27 June 2020 and 5 April 2021 (including these dates).
This a welcome move as businesses re-activate their activities by providing relief from the admin burdens of having to apply for extensions. Previously, if a business wished to obtain an extension they were required to apply via a Companies House portal quoting coronavirus, and upon doing so, Companies House would provide an automatic three-month extension as long as this was applied for before the filing deadline.
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, and so if you have already applied for an extension you should check your record at Companies House.
Extensions are also being automatically applied to other items that were previously due within 21 days such as extending the confirmation statement period from 14 days to 42 days.
What if I can’t complete my year-end close down?
If you cannot, or could not, complete your year-end close down process at (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 where relevant, 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 minimal 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. Tax compliance
If you take advantage of the accounts filing extension, remember the payment dates for corporation tax (eg usually 9 months and 1 day from the year-end) and the filing deadlines for the corporation tax return (eg usually 12 months from the year-end), have not changed. You will still be required to prepare accounts to allow a corporation tax provision to be calculated and paid, iXBRL tag the final accounts and lodge them alongside the final corporation tax computation.
Also, filing two tax returns and more complex payment dates will arise if you extend your accounting period beyond 12 months as set out above.
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