Accountancy processes: Statutory accounting requirements

Welcome to our comprehensive Doing Business in the UK article series, designed specifically for international businesses and investors looking to establish or expand their operations in the United Kingdom. This series aims to provide you with essential insights and practical guidance on navigating the UK business landscape.

Throughout this series, we will cover the initial setup of your business, understanding business taxes, and the process of registering a UK business. We will also delve into workforce setup, payroll, employment costs and international hiring considerations for businesses employing people in the UK. Finally, we also explore accountancy processes, compliance and management reporting requirements, and discuss the ins and outs of importing goods and services into the UK.

UK law requires UK companies, LLPs, LPs and establishments (‘an entity’ or ‘entities’) to keep adequate accounting records and to prepare accounts for each financial year that must be filed at Companies House.

Generally, tax legislation requires that accounting records be kept for at least six years. If accounting records are kept outside of the UK, accounts and returns sufficient both to disclose the financial position of the business, and to enable directors to prepare a balance sheet and a profit and loss account, must be sent and kept in the UK.

All entities must report in respect of each accounting reference period. Typically, this will be for 12 months. However, an entity may shorten this period or extend it by up to 18 months, subject to some limitations.

There is an overriding requirement for an entity to prepare accounts for each financial year that show a true and fair view. An entity is permitted to prepare its accounts under either UK GAAP (generally accepted accounting principles, i.e., Financial Reporting Standard (‘FRS’) 101, 102 (including section 1A) and 105) or IFRS (International Financial Reporting Standards) as adopted by the UK. An entity can qualify as a dormant entity, a micro-entity, a small entity, a medium entity, or a large entity.

Generally, an entity will qualify as the respective size if it meets at least two of the three following conditions for both the current accounting year and the previous accounting year.
 

			Micro*	Small*	Medium*
Turnover	or 'Revenue'	Not more than	£1m	£15m	£54m
Balance sheet total	or 'Total assets'	Not more than	£500k	£7.5m	£27m
Average employees	i.e. average, annual headcount	Not more than	10	50	250

Entities exceeding the “Medium” thresholds are considered large.
The above table shows ‘net’ thresholds; ‘gross’ thresholds are also applicable for group figures.
*Thresholds applicable for accounting periods beginning on or after 6 April 2025.

Disclosure exemptions are available to entities depending on the accounting framework chosen (as set out above). These Reduced Disclosures (“RD”) are dependent on certain conditions being met, as indicated in the table, below:
 

Framework	Eligible entities	Parent must consolidate	Parent framework must be IFRS (or equivalent)	Parent accounts must be publice	Key notes
FRS 102	UK, non-listed entites	✗	✗	✗	Full disclosure under FRS 102.
FRS 102 RD	Subsidiaries & parents included in publicly available group accounts	✔	✗	✔	Uses FRS 102 recognition and measurement criteria with disclosure exemptions available.
FRS 102 s1A	Small entities	✗	✗	✗	Simplified FRS 102 disclosures.
FRS 105	Micro entites				Highly simplified and limited.
FRS 101	Subsidiaries & parents included in IFRS (or equivalent) publicly available group accounts	✔	✔	✔	Uses IFRS recognition and measurement criteria with disclosure exemptions available.
IFRS (UK adopted)	Any UK entity (mandatory for listed entites)	✗	✗	✗	Mandatory for listed businesses.

The accounting framework an entity chooses to prepare its financial statements under is often a choice that management will need to exercise judgement in making. For instance, a UK subsidiary of a global group, which prepares IFRS accounts, might choose to adopt a permissible UK framework that uses the same recognition and measurement criteria as the global group in which it is consolidated. Available accounting frameworks in the UK include some nuance and consultation with a professional might be required.

There are also various considerations that a UK entity needs to consider in order to determine whether a statutory UK audit is required. In the example above, these would include whether the global group (using the size criteria above) is a non-small entity in its own right or when considered as a whole. Small entities and groups may be required to undertake a UK statutory audit, and there are some limited exceptions from UK audit for non-small entities.

The amendments to FRS 102 that take effect for accounting periods beginning on or after 1 January 2026 are the most significant changes to the standard since it was introduced in 2015. These bring FRS 102 more in line with International Financial Reporting Standards, and in doing so bring additional complexity to businesses reporting under FRS 102.