Notes to the accounts for UK startups: statutory disclosure requirements and practical checklist

Which Accounting Rules Apply? FRS 105 vs. FRS 102 Section 1A

The level of detail required in your startup's statutory accounts notes is not one-size-fits-all. UK accounting standards provide different frameworks based on company size to ease the reporting burden on smaller entities. The starting point is to determine whether your company qualifies as a 'Micro-Entity' or a 'Small Company', as this dictates your entire compliance workload.

A 'Micro-Entity' is governed by FRS 105. To qualify, your company must meet at least two of the following criteria:

• Turnover of £632,000 or less
• Balance sheet total of £316,000 or less
• 10 employees or fewer

If your startup is slightly larger, it will likely fall under the 'Small Company' regime, which follows FRS 102 Section 1A. A company must meet at least two of the following criteria to qualify:

• Turnover of £10.2 million or less
• Balance sheet total of £5.1 million or less
• 50 employees or fewer

Most venture-backed startups from pre-seed to Series A will fit comfortably into the small company category.

Startup Statutory Accounts Notes Requirements for Micro-Entities (FRS 105)

If your startup qualifies as a micro-entity, the disclosure requirements are significantly reduced. The goal of FRS 105 is maximum simplicity. Under this standard, notes are minimal and appear at the foot of the balance sheet rather than in a separate section.

For many startups at this stage, the only mandatory note relates to financial commitments and director transactions. The primary requirement is the disclosure of any advances, credit, or guarantees provided by the company to its directors. For specific guidance, see our guide to related party disclosures. Beyond this, the requirements are very light, reflecting the simple nature of businesses at this scale.

Mandatory Financial Disclosures for Small Companies (FRS 102 Section 1A)

Once your startup grows beyond the micro-entity thresholds, the mandatory financial disclosures become more detailed. Operating under FRS 102 Section 1A means preparing a more comprehensive set of notes to accompany your financial statements. These accounts must also include a statement confirming they were prepared in compliance with this standard. For a practical checklist of required note types and templates, see our guide to notes to the accounts.

Here are the non-negotiable notes you’ll need when preparing notes for your annual accounts:

1. Accounting Policies

This is the cornerstone of your notes. It explains the specific principles, bases, conventions, rules, and practices applied in preparing the financial statements. Key policies for a startup typically include:

• Revenue Recognition: How and when do you recognise revenue? This is crucial for SaaS, E-commerce, and Professional Services businesses. The policy must be specific to your business model. For guidance on drafting clear policy wording, consult our revenue recognition guide.

For a typical SaaS business, a policy might state: “Revenue from subscription services is recognised over the period of the contract on a straight-line basis. Revenue from implementation and setup fees is recognised upon completion of the service.”

• Research and Development (R&D): How do you treat your R&D expenditure? The distinction between expensing costs as incurred versus capitalising them as an intangible asset is critical, especially for R&D tax claims.

A common policy for early-stage startups is: “All research and development expenditure is written off to the profit and loss account as it is incurred.”

• Tangible Fixed Assets: This explains how you account for physical assets like laptops and office equipment, including your depreciation policy (e.g., straight-line over three years).
• Share-Based Payments: If you have an employee share option scheme, such as an EMI scheme, you must have a policy explaining how you value these options and recognise the associated expense.

2. Revenue Recognition

While mentioned in the accounting policies, a separate note providing a breakdown of turnover is often helpful, especially for companies with multiple revenue streams. For example, a Deeptech company might need to distinguish between grant income, licensing fees, and early product sales. Similarly, an E-commerce business might split revenue by product line or geography to provide clarity.

3. Share-Based Payments

For most tech startups, equity is a key part of team compensation. If you have an EMI or other share option scheme, this note is mandatory. This disclosure provides transparency on the potential dilution and cost of these schemes. It requires a valuation, often using a method like the Black-Scholes model, to calculate the expense recognised in the accounts. The note should detail the movement in options during the year.

A simple breakdown illustrating the movement in share options would include:

• Outstanding at Start of Year: 100,000 options with a weighted average price of £1.00
• Granted During the Year: 50,000 options with a weighted average price of £1.50
• Forfeited/Exercised: (10,000) options with a weighted average price of £1.00
• Outstanding at End of Year: 140,000 options with a weighted average price of £1.32

4. R&D Costs

This note is directly linked to your ability to claim tax relief. A clear R&D accounting policy and a note detailing the costs support the consistency of an R&D tax relief claim. Your note should specify the total amount of R&D expenditure recognised as an expense during the period. The reality for most startups is more pragmatic: expensing all R&D costs is simpler and aligns with the uncertainty of early-stage projects. For practical filing guidance, refer to the government advice on how to prepare and file company accounts.

5. Other Mandatory Notes

Beyond the startup-specific notes above, you will also need to include disclosures for other standard items. These are fundamental to UK company disclosure requirements:

• Tangible Assets: A table showing the cost, depreciation, and net book value of assets like computer equipment and fixtures.
• Debtors and Creditors: Details on amounts owed to and by the company, split between those due within one year and after one year.
• Taxation: A breakdown of the company's corporation tax charge for the period.
• Employees: The average number of employees during the year.

Practical Steps for Preparing Your Notes to the Accounts

Meeting UK startup statutory accounts notes requirements doesn't have to be a source of stress. The key is to move from a reactive, end-of-year scramble to a proactive approach throughout the year.

First, identify whether you fall under FRS 105 or FRS 102 Section 1A early in your financial year. Second, use your accounting system, like Xero, to tag transactions correctly. For example, create specific account codes for qualifying R&D expenditure or different revenue streams (e.g., 'SaaS - Subscriptions' vs. 'SaaS - Services'). This organisation makes extracting the granular data needed for your notes significantly easier at year-end. For a step-by-step submission process, consult our guide on filing statutory accounts with Companies House.

In practice, we see that startups that maintain organised records and draft their accounting policies in advance face fewer errors and delays. This isn't just about avoiding penalties. It demonstrates robust governance and financial discipline, which is a powerful signal to current and future investors. Getting your notes right builds a foundation of trust and prepares you for the greater scrutiny that comes with growth. For more tools and reading, visit the statutory financial reporting hub.

Frequently Asked Questions

Q: What is the most common mistake startups make with their notes to the accounts?
A: The most common error is poor record-keeping throughout the year. Waiting until the last minute makes it difficult to accurately segment data for notes on revenue, R&D, or share options. Using accounting software like Xero to tag transactions as they happen is the best way to avoid this scramble.

Q: Do I need an accountant to prepare my startup's financial statement notes?
A: While not legally required for small companies, it is highly recommended. An experienced accountant ensures your notes are compliant with FRS 102 Section 1A, especially for complex areas like share-based payments and R&D tax claims. This helps avoid filing errors and provides investor confidence.

Q: Can I use a standard template for my accounting policies note?
A: While statutory accounts templates can be a useful starting point, your accounting policies must be tailored to your specific business model. For example, a SaaS company's revenue recognition policy will be very different from an e-commerce or biotech firm's. Copying a generic template can lead to non-compliance.