‘Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors.’ Re Barings plc (No 5)  1 BCLC 523.
According to the Companies Act 2006, Directors are responsible for preparing annual accounts for each of the financial years of their company (section 394). They must not approve any set of annual accounts unless they are satisfied that they give a ‘true and fair view’ of the assets, liabilities, financial position and profit or loss of their company (and in the case where the company has subsidiaries and prepares group accounts, of the group as a whole) (section 393).
These are fairly onerous duties for directors of small companies to undertake, not least of which familiarising themselves with the legislation is no small task. It should be no surprise, therefore, that many companies fail to comply with existing legislation and that many directors are unaware of the duties imposed upon them.
At the start of November, HMRC announced a “new approach” to checking business records. This follows a pilot programme, running since April last year, under which HMRC carried out some 3,400 business record checks.
The scheme will potentially target any small or medium-sized enterprises (SMEs), defined for these purposes as “businesses with an annual turnover below £30 million who employ less than 250 people” – i.e. the vast majority of UK businesses. According to HMRC statistics, more than one in three of such businesses will have “some issue with their record-keeping” while one in ten checks will reveal “issues serious enough to warrant a follow up visit”. As ever, there will be hefty fines for failing to maintain adequate records!
We can help you with this by ensuring the accounting records are complete and by providing you with a checklist of directors duties to help you keep on top of what is needed.