University Business Accounts Essay: Legal Requirements Analysis

This essay provides a comprehensive overview of the legal requirements governing business accounts in the UK, differentiating between small and large businesses. It begins by establishing criteria for classifying business size based on revenue, number of employees, and net assets, referencing key sources like Gordon (2016) and Keay (2018). The discussion delves into the specific legal obligations of small businesses, including tax payments, record-keeping, and VAT registration, while also highlighting the option of preparing abridged accounts. The essay then outlines the more stringent requirements for large businesses, such as mandatory financial statements, director responsibilities, and adherence to financial reporting standards like IAS. It emphasizes the importance of the Companies Act 2006 and the role of directors in ensuring accurate financial reporting. The conclusion summarizes the flexibility introduced by UK legislation for both small and large businesses and the ongoing evolution of accounting practices.

Running head: BUSINESS ACCOUNTS
Business Accounts
Name of the Student
Name of the University
Authors Note
Course ID

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Introduction:
Prior to moving to legal requirements relating to business accounts for big and small
companies it is necessary to determine the actual size of the business. According to Gordon
(2016) it is necessary to determine the size of business so that it can be differentiated from
one another, particularly at the time of dealing with the business accounts. The size of a
business can be better classified in terms of revenue, number of workforce and net assets. As
per Keay 2018) the sales revenue of the small business should not be greater than £10.2
million with number not more than 50. The large businesses simultaneously can exceed the
figures of medium size firms.
Discussion:
According to Salim and Leonard (2019) if the business is eligible as small business
and falls within the realms of sole trader, the legal anticipation remains in how small business
manages its accounts that are different from large business. The legal requirements of small
business includes paying taxes but they are not legally required to make a comprehensive
income statement at the end of accounting year. However, the owner of small business are
required to fill the self-assessment form and sending the same to HMRC for assessment
purpose. The small business are mandated by the law to pay tax on income for any profits
made by business and obligated by law to keep record of all the accounting income and
expenditure.
Small business are mandatorily required to obtain VAT registration for producing
sales revenue of more than £85,000. The law implies that business must charge VAT on all
the goods and services sold by them and submit the VAT to HMRC. “Section 1A of FRS
102” inspires small business to make comprehensive income statement and retained earnings
in order to provide true and fair view (Hummel and Roetzel 2018). The new regulations of

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UK company law requires the small business to have books audited when they choose to file
the copy of profit and loss accounts.
A small business is allowed to prepare abridged accounts to adhere with the law of
small company disclosure. However, if the small business decides to abridge all the parts of
accounts then it should deliver the statement to the Companies House that all the members
have acknowledged abridgement.
For large business with employee strength of more than 250 people having turnover
more than £36 million with balance sheet asset totalling greater than £18 million are legally
mandated by law to make financial statements once in a year (Wardle and Mills 2018). This
is regarded as statutory requirement mandated by the “Companies Act 2006 under section
399”.
The limited companies are mandated by law to appoint directors while the PLC must
have at least two director and private limited company must have a minimum of one director.
The directors of businesses should not approve accounts until they are content that it provides
a true and fair view of the assets, liabilities, profit or loss accounts and financial position
(Habib, Ranasinghe and Huang 2018). “Section 389 of the Company’s Act 2006” requires
the directors to prepare the balance sheet on the last day of the financial year as well as
income statement for the year.
Where it is noticed that directors of large companies following IAS to individual
accounts then they should provide notes to the accounts that the accounts are prepared in
respect of the IAS instead of following IFRS (Wardle and Mills 2018). On noticing that a
large business owns the subsidiaries, the directors of large companies are mandated by law
the individual accounts of parent company and each of subsidiary businesses are prepared by
following the same financial reporting structure. The large companies are not legally

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permitted to use two different financial reporting framework. The annual reports of the
companies should be approved by the board of directors and should be signed on behalf of
the board by company’s director. The law mandates to make signature on the balance sheet of
the company.
Conclusion:
On a conclusive note, the legislation of UK aims to introduce wider flexibility in all
the formats of small and large business. Although there are some companies that have
adopted the new legislation much early but it remains to be seen which routes proves highly
popular for the businesses.

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References:
Gordon, R. 2016. CHANGES TO ACCOUNTING STANDARDS AND REGULATIONS.
Habib, A., Ranasinghe, D. and Huang, H.J., 2018. A literature survey of financial reporting in
private firms. Research in Accounting Regulation, 30(1), pp.31-37.
Hummel, K. and Roetzel, P.G., 2018. Mandating the Disclosure of Sustainability Information
in Annual Reports–Evidence from the Companies Act 2006 Regulations 2013. Available at
SSRN 3277478.
Keay, A., 2018. Financially Distressed Companies, Restructuring and Creditors: What is a
Director to do?. Lloyd's Maritime and Commercial Law Quarterly.
Salim, M.R. and Leonard, L.S., 2019. Farewell the Constitution? Mandatory Rules and (the
New) Default Rules in the Companies Act. Mandatory Rules and (the New) Default Rules in
the Companies Act (January 1, 2019). International Company and Commercial Law Review,
Forthcoming.
Wardle, M. and Mills, S., 2018. Transparency and disclosure–do policy frameworks enhance
financial centre reputation?. Journal of Sustainable Finance & Investment, pp.1-6.