Interaction of filing extension when filing parent consolidated accounts

If an entity has an accounts filing deadline between 27 June 2020 and 5 April 2021 inclusive, Companies House will, if they are able to, provide an automatic three-month extension without a need to apply for it. However, entities need to be aware of how this will interact with associated filing requirements, for example the need to file parent company consolidated accounts to use the exemptions permitted by:

1. Audit exemption via parent company guarantee (s479A)
2. Group accounts exemption for a UK intermediate parent with a non-UK parent (s400, s401)

What does the legislation say?

The period for filing the individual accounts of the company (as defined in s442) can be extended to a maximum of 12 months, ie the three-month extension applied by Companies House is the maximum allowed under the legislation for a private limited company. However, the timing of the parent consolidated accounts filing is different in each case:

1. In order to use the 'Audit exemption using parent company guarantee (s479A of CA06)' the parent consolidated accounts and all other relevant paperwork must be lodged on or before the date subsidiary company accounts are lodged.
2. In order to use the 'Group accounts exemption for a UK intermediate parent with a non-UK parent (s400, s401 of CA06)' the consolidated accounts must be lodged within the period for filing of the subsidiary accounts.

Practical impact and interpretation for preparers

If either the group or the subsidiary accounts signing is delayed, the use of the automatic extension to the accounts filing deadline for the subsidiary accounts should prove useful, thus ensuring the subsidiary can take advantage of the exemption sought and minimise the filing penalties. 

1. Audit exemption using parent company guarantee (s479A of CA06). When using this audit exemption, the key logistical challenge is to ensure the consolidated accounts are available by the time the subsidiary accounts are to be filed, even if this is after the filing deadline. If the group accounts are going to be substantially delayed the subsidiary should consider whether use of the exemption from audit and hence continued delay is in the best interests of the entity and hence whether an audit should be undertaken. Parent companies should consider whether retaining the parent company guarantees over their subsidiaries liabilities is in the best interests of the parent company, given the implications of the guarantee being called upon in the current economic conditions, and being cognisant of their fiduciary duties.
2. Group accounts exemption for a UK intermediate parent with a non-UK parent (s400, s401 of CA06). In respect of the group accounts exemption, obtaining a filing extension is especially important as the parent accounts need to be lodged within the period for filing. If filing is delayed beyond the period allowed for filing, arguably consolidated accounts will then be required, which could entail substantial additional cost for both the preparation and audit of the group accounts.

Our advice

• Entities should review the filing extensions that Companies House have applied, and then consider whether the parent and subsidiary accounts are unlikely to be filed in the necessary timeframe. Entities should be aware of the potential impact using the extension could have on loans, credit ratings, dividend payments and the filing of tax returns.
• Entities with a filing deadline falling outside the window of automatic filing extensions (ie post 5 April 2021) should consider if they require additional time to prepare and file either the individual entity accounts or the consolidated accounts they are included in, and if so, consider what extensions to filing deadlines are available to allow them to take advantage of the available exemption.
• The directors of the parent company should be aware of their fiduciary duties and consider if providing a parent company guarantee in the current economic climate is in the best interests of the company.

For more information please contact Paul Merris and Lee Marshall.