Management Accounts vs Statutory Accounts Explained

Statutory accounts are the annual accounts the law requires a limited company to prepare and file with Companies House and HMRC, while management accounts are optional internal reports that show directors how the business is doing during the year. You must have the first; you choose whether to have the second. This guide explains management accounts vs statutory accounts in plain English, what each contains, and when paying for management accounts is worth it.

Key takeaways

• Statutory accounts are compulsory, follow a set format and have fixed deadlines.
• Management accounts are voluntary, flexible and for the directors' eyes.
• Both come from the same bookkeeping, so good records serve both.
• Management accounts help with dividends, cash flow and lender requests.
• Expect year-end profit to differ from monthly figures because of adjustments.

What are statutory accounts?

Statutory accounts, also called annual accounts or year-end accounts, are prepared once a year for the company's financial year. They are prepared under the Companies Act and UK accounting standards, and they include at least a balance sheet and notes, with a profit and loss account for HMRC. Every limited company must prepare them, even if it is dormant or made a loss. GOV.UK sets out the rules in its guide to preparing and filing annual accounts.

For most private companies the accounts are due at Companies House 9 months after the end of the financial year, and the same accounts go to HMRC with the Company Tax Return, which is due 12 months after the end of the accounting period. A company's first accounts have a different deadline, usually 21 months after incorporation. Our guide to company accounts deadlines works through the dates, and micro-entity accounts explains the simplest format most small companies can use.

What are management accounts?

Management accounts are reports prepared for the directors, usually monthly or quarterly. There is no legal format. A typical pack includes a profit and loss report for the period and the year to date, a balance sheet, the bank balance, who owes the company money and who the company owes, and a comparison with budget or the same period last year. Some include a short cash flow forecast. They are not filed anywhere, and nobody outside the company sees them unless the directors choose to share them, for example with a bank.

Management accounts vs statutory accounts compared

When management accounts are worth having

• You pay yourself in dividends. Dividends can only come from available profits. Current figures help directors check that before declaring one. See our guide to dividend vouchers and board minutes.
• Cash is tight. Seeing debtors, creditors and the corporation tax coming up stops surprises.
• You want finance. Lenders often ask for recent management accounts as well as the last statutory accounts.
• You are growing. Monthly figures show whether new staff or premises are paying for themselves.
• You want a calmer year end. Problems found monthly are fixed in minutes. Problems found 9 months later take hours.

Checklist: producing simple monthly management accounts

1. Bring the bookkeeping up to date for the month, including all sales and purchase invoices.
2. Reconcile every bank account and any credit card to its statement.
3. Review who owes you money and chase anything overdue.
4. Add simple accruals for large bills that have not arrived yet.
5. Run the profit and loss and balance sheet for the month and year to date.
6. Compare with last month, last year or budget, and note anything unusual.
7. Estimate the corporation tax building up on the year's profit so far.
8. Share the pack with the directors and record any decisions taken.

Our month-end bookkeeping checklist covers the first steps in more detail, and our guide on accruals and prepayments explains the adjustments.

Worked example (illustrative example)

Illustrative example only, not a real company. A two-director design company with a 31 March year end pays the directors a small salary and takes the rest as dividends. In its first year it had no management accounts. In January the directors declared a dividend based on the bank balance, which looked healthy because a large client had paid in advance for work not yet done and VAT for the quarter was still sitting in the account.

When the year-end accounts were prepared, the advance payment was treated as income for the following year and the VAT was shown as owed to HMRC. Profit was lower than the directors had thought, and the dividend left very little in reserves. In year two they switched to quarterly management accounts. Each quarter showed profit to date, the VAT liability and an estimate of corporation tax, so the directors could size dividends against actual available profits rather than the bank balance.

Common mistakes

• Treating the bank balance as profit. Cash includes VAT, tax and money from customers for future work.
• Assuming management accounts can be filed. Companies House and HMRC need statutory accounts in the required format.
• Leaving out corporation tax. Monthly profit before tax flatters the position. Keep an estimate of the tax building up.
• Producing reports nobody reads. A one-page summary that the directors discuss beats a long pack that sits in an inbox.
• Letting bookkeeping slip. Management accounts are only as reliable as the records behind them.

How we can help

We prepare statutory accounts and the Company Tax Return for small limited companies, and we can add regular management reporting through our bookkeeping service. Company accounts start from £350 per year, and bookkeeping from £150 per month, on fixed fees. See our company accounts service, check our pricing, or contact us to talk through what level of reporting suits your company.