The directors’ report is a statutory document that must accompany your company’s annual accounts. It provides information about the company, its directors and certain matters that the law requires to be disclosed. For small companies, many of the requirements are optional – but understanding what must be included and what can be left out helps you file correctly.
Who needs to file a directors’ report?
Every UK company must prepare a directors’ report as part of its annual accounts. However, not every company needs to file it at Companies House:
| Company size | Must prepare? | Must file at Companies House? |
|---|---|---|
| Medium and large | Yes | Yes |
| Small | Yes | No (can choose to omit from filing) |
| Micro-entity | Yes (simplified) | No |
Small companies are entitled to exemption from filing the directors’ report at Companies House under Section 415A of the Companies Act 2006. Most small companies take advantage of this and file abridged or filleted accounts without a directors’ report.
Even if you do not file it, you must still prepare it and make it available to shareholders.
Mandatory contents for all companies
The following information must be included in every directors’ report, regardless of company size:
Names of directors
List every person who served as a director during the financial year, including anyone who was appointed or resigned part-way through the year.
Principal activities
A brief statement of the company’s principal activities during the year. This does not need to be lengthy – a single sentence is often sufficient. For example: “The company’s principal activity during the year was the provision of management consultancy services.”
If the company’s activities changed during the year, describe the change.
Dividends
If the company paid or recommended dividends during the year, state the amounts. This includes:
- Interim dividends paid during the year
- Any final dividend recommended by the directors (which shareholders will vote on at the AGM)
If no dividends were paid or recommended, state that.
Political donations and expenditure
If the company made any political donations or incurred political expenditure exceeding £2,000 during the year, disclose the amounts and the recipients. Most small companies have nothing to report here, but the disclosure is still required (even if just to say “nil”).
Post-balance sheet events
Disclose any significant events that have occurred between the balance sheet date and the date the report is signed. These might include:
- Acquisition or disposal of a business
- Major contract wins or losses
- Legal proceedings commenced against the company
- Natural disasters or other events affecting operations
If there are no significant post-balance sheet events, state that.
Qualifying third-party and qualifying pension scheme indemnity provisions
If the company has provided any indemnities to directors (for example, directors’ and officers’ insurance), disclose this fact. You do not need to state the terms, just confirm that indemnities exist.
Additional requirements for medium and large companies
Medium and large companies have more extensive disclosure requirements:
| Disclosure | Requirement |
|---|---|
| Business review / strategic report | Separate strategic report required for medium and large companies |
| Financial risk management | Description of principal risks and how they are managed |
| Employee information | Average number of employees, policies on disabled employees and employee engagement |
| Greenhouse gas emissions | Energy consumption and emissions data (for quoted and large companies) |
| Research and development | Description of R&D activities |
| Future developments | Indication of likely future developments |
| Branches outside the UK | Existence of overseas branches |
| Financial instruments | Use and policies around financial instruments |
| Section 172 statement | How directors have had regard to stakeholder interests |
Small companies are exempt from all of these additional disclosures.
Small company exemptions
If your company qualifies as small (meeting at least two of: turnover up to £15 million, balance sheet total up to £7.5 million, up to 50 employees), your directors’ report only needs to contain:
- Names of directors
- Principal activities
- Dividends
- Political donations (if any)
- Post-balance sheet events
- Indemnity provisions
You do not need to include a business review, employee information, R&D details or any of the other medium/large company disclosures.
And as noted above, you do not need to file the directors’ report at Companies House at all if you take advantage of the small company filing exemption.
Micro-entity directors’ report
Micro-entities (turnover up to £1 million, balance sheet total up to £500,000, up to 10 employees) have the lightest requirements. Under FRS 105, the directors’ report can be extremely brief. Some micro-entities include the required disclosures as a note on the balance sheet rather than preparing a separate report.
Drafting the report
Structure
There is no prescribed format, but most directors’ reports follow this structure:
- Opening statement – identifying the company and the period covered
- Directors – listing all directors who served during the year
- Principal activities – one or two sentences
- Results and dividends – summarising profit/loss and dividends paid
- Post-balance sheet events – significant events after year end
- Directors’ indemnities – confirming any insurance or indemnity arrangements
- Political donations – amounts or a nil statement
- Small company exemption statement – confirming the report is prepared under the small companies regime
- Signature – signed by a director on behalf of the board, with the date
Tone and language
The directors’ report is a formal legal document, but it does not need to be written in dense legal language. Clear, factual statements are appropriate. Avoid promotional language or forward-looking claims that could be misleading.
Approval and signing
The report must be approved by the board and signed by a director on behalf of the board. The date of signing should be included. If the report is filed at Companies House, the signature must appear on the filed version.
Common mistakes
- Omitting a director who served briefly – if someone was appointed and then resigned during the year, they must still be listed
- Not updating principal activities – if your company’s activities have changed, update the description rather than reusing last year’s wording
- Missing the post-balance sheet events disclosure – even if there are no events to report, include a statement saying so
- Confusing the report with the accounts – the directors’ report is a separate document that accompanies the accounts, not part of the balance sheet or profit and loss account
Filing at Companies House
If you choose to file your directors’ report at Companies House (which is optional for small companies), it forms part of your annual accounts package. The same 9-month filing deadline applies.
Most small companies choose not to file it, since doing so puts additional information on the public register. If you file filleted or abridged accounts, the directors’ report is excluded by default.
Annual review
The directors’ report should be reviewed and updated each year. While much of the content stays the same, the directors listed, the dividend information and the post-balance sheet events will change. Treating it as a template to be refreshed rather than rewritten from scratch each year makes the process efficient.