Late Filing of Accounts: Personal Liability for Company Directors

All companies must send their accounts to Companies House each year. Recent evidence suggests that UK companies are increasingly struggling to file their accounts on time, with around 213,000 private companies reportedly missing their deadline in 2019–2020, resulting in over £93,000,000 of penalties being issued. Over a fifth of companies that filed their accounts late that year had also filed late in the previous year.

Under the Companies Act 2006 (the Act), the deadline for private companies to file their annual accounts is nine months from the end of the accounting reference period. There are slightly different rules for filing your first set of annual accounts and if these cover a period of more than 12 months, you must deliver them to Companies House within 21 months of the date of incorporation or three months from the accounting reference date, whichever is longer.

Not filing your accounts at Companies House in a timely manner is also a criminal offence (under section 451 of the Act) and directors can be personally fined in the criminal courts. It is likely to come as a shock to most company directors who receive a summons to attend the Magistrates’ Court in Cardiff for a criminal prosecution, particularly directors in larger companies where directors are often detached from the preparation of accounts and senior financial staff and accountants are instructed to take care of such matters. However, thousands of company directors are prosecuted every year.

These prosecutions are generally difficult to defend because the offence of not filing accounts under section 451 of the Act is akin to a strict liability offence. If accounts are not on time, then an offence is committed unless the director concerned can demonstrate that they took “all reasonable steps” for securing that the requirement would be complied with before the end of the relevant filing period. The court also has power to grant relief if it appears that the director acted “honestly and reasonably and that having regard to all the circumstances of the case he ought fairly to be excused”, however both of these defences set quite a high bar. Therefore, it is only in exceptional circumstances that directors are acquitted and often the most appropriate response is to admit the offence but submit a plea in mitigation, so as to try and minimise the level of fine as much as possible. However, this will depend on the facts of the case and so it is important to seek legal advice at an early stage.

Even if accounts are late due to an ongoing shareholder dispute, this is not usually an acceptable excuse and so it can sometimes be advisable to file such accounts under protest (with a note reflecting that in the accounts in necessary) in order to avoid a late filing penalty and criminal conviction.

A director found guilty of an offence under this section is liable to an unlimited fine in addition to a daily default fine for continued contravention. The director is also left with a criminal record and if someone has more than one conviction, this can result disqualification proceedings being brought against the director to prevent him or her from holding the position of director of a UK company. Having a criminal record (albeit for a Companies Act offence) also has practical consequences, for example it will have to be declared when travelling to certain countries.

In the past, the maximum fine for the offence was £5,000 and prosecutions were relatively rare, however times have changed and at Charles Russell Speechlys LLP, our experience indicates that Companies House are hardening their approach to late filings by pursuing more prosecutions against directors.

Any criminal proceedings for not filing company accounts is also separate from (and in addition to) any civil late filing penalties issued by Companies House against the company.

The level of penalty depends on how late the accounts are and whether the company is public company or private. For example, if a private company is required to deliver acceptable accounts by 30 June 2020 but they are delivered up to one month late then the company will get a £150 penalty, whereas if the accounts are delivered over six months late then they will get a £1,500 penalty. The equivalent penalty for a public company to deliver their accounts over six months late is £7,500. The penalty will also be doubled if accounts are filed late in two successive financial years.

Particularly in the present economic climate, filing accounts late may also have serious consequences for a company’s ongoing trading activity and access to finance, since it might trigger defaults under credit agreements and enable lenders to withdraw facilities or overdrafts. In some circumstances, Companies House may also issue a compulsory strike-off notice against the company if it considers that the company is no longer in operation because documents have not been filed. The notice will be placed on the company’s public record and so again, this may raise red flags with suppliers and result in them withdrawing supplies if they too lose confidence in the company’s ability to continue as a going concern. Therefore, not filing accounts can lead to larger problems if this is not acted upon quickly.

It is therefore important to ensure that your company accounts are filed at Companies House well within the deadline. It doesn’t matter if your deadline falls on a Sunday or a Bank Holiday; you must still for your accounts by that date. It is also worth noting that if Companies House returns your accounts because they do not meet the requirements of the Companies Act and then corrected accounts are filed late, the company will still get a late filing penalty and so it is not advisable to file documents right up against the deadline. To help you file your accounts on time, you can register for email reminders from Companies House. It is also advisable to instruct your accountants in plenty of time, particularly important if you are required to file audited accounts as sufficient time will need to be set aside for the auditing process.

In some limited situations (such as following an unforeseen event), you can apply for more time to file your accounts if your filing deadline has not yet passed, however an extension will only be granted if the reasons are exceptional.