New reporting for small companies – Oct 2016
In March 2015 the UK Government approved new regulations that implemented the requirements of the new EU Accounting Directive into UK company law. While the changes introduced by the regulations are wide ranging, some of the most significant relate to the small companies regime.
Under the old rules Small companies – fulfilling two for the following criteria for two successive years, unless first year – Turnover < £6.5m, Balance Sheet total < £3.26m or employees < 50, were eligible to prepare accounts under the FRSSE as a small company.
With effect for accounting periods starting on/after 1 January 2016, this has all changed.
Now the small company definition has been increased to fulfilling two for the following criteria for two successive years, unless first year – Turnover < £10.2m, Balance Sheet total < £5.1m or employees (still) < 50.
Small companies will now have to prepare accounts under FRS102 section 1A.
However they can opt, if they qualify as a micro-entity – fulfilling two for the following criteria for two successive years, unless first year – Turnover < 632k, Balance Sheet total < 316k or employees < 10, to file accounts under micro entity accounting (which they have always been able to do since 2014 under the FRSSE) under FRS105.
There are certain types of company that are specifically excluded from being “small” or “micro”. A typical owner managed trading company, not part of group would be eligible – if in doubt please ask me.
Under FRS102 it is no longer possible to submit abbreviated accounts to Companies House – FRS102 Section 1A for small companies requires a full set of accounts to be provided to shareholders, but permits a reduced set – excluding the directors’ report, profit and loss account and notes to the profit and loss account to be sent to Companies House.
Under FRS105 micro accounts could be prepared – which includes a reduced profit and loss account, reduced balance sheet and only two notes – details of directors’ advances and guarantees and other financial commitments. The full set would again go to the shareholders but they would be sent to Companies House without the profit and loss account.
When filing accounts at HMRC a full set under FRS102 or 105, a detailed profit and loss account would be required in addition to the full set of accounts.
There have also been some changes to accounting for certain items.
Under FRS102 – goodwill, software and website development, Leases, forward contracts in foreign currency, investment properties, holiday pay, financial instruments, revaluation of fixed assets, share based payments and stock valuation.
Under FRS105 – no fair value accounting and no deferred tax.
It is quite possible that for simple small companies that the only items that would be relevant are holiday pay and deferred tax. If you would like to know more, please ask me.
So directors have a choice on which basis to prepare their accounts, neither file a profit and loss account at Companies House. If the FRS105 option is used – Micro-entity accounts, whilst there is less disclosure it indicates that the company has a lower turnover than if they were prepared under FRS102 section 1A.
If you would like to discuss your position further, please let me know.
Friston Wicks; Chartered Accountant and Chartered Tax Advisor