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Big changes for small companies

Big changes for small companies

The last few months have seen some big changes for small companies, much of which have been brought about by the EU Accounting Directive, which is now part of Company Law in the UK.

If you are a small company, you will be subject to new company regulations with effect for accounting periods beginning on or after 1 January 2016.

The first major change is an increase in company size thresholds. Company size thresholds determine whether a company is regarded as a micro-entity, small, medium or large. The increases mean that some companies which were previously regarded as medium sized will now be deemed as small and can take advantage of the small companies’ regime, including reduced disclosure requirements in your financial statements, as well as the possibility of being exempt from audit.

The revised thresholds for small companies are as follows. To qualify as a small company, you must be below two of the three following thresholds.

As a small company, you will no longer be able to prepare financial statements under the Financial Reporting Standard for Smaller Entities (FRSEE), which is currently used by most small companies.

In many instances, you will now need to prepare financial statements under FRS102, the new financial reporting framework in the UK.

The difference in preparing your financial statements under FRS102 compared to FRSEE will vary dependent on your individual circumstances. One distinction, for example, will be the difference in treatment/disclosure of some items such as investment properties and directors loan accounts.  For many companies, there will be no notable difference; however, for others, the changes could be significant.

If you are a micro-entity you may choose to prepare financial statements under FRS105, a standard adapted to accommodate the legal requirements of the micro-entities regime and simplified to reflect the nature and size of micro-entities.  

It is essential that you discuss the new reporting standards with your adviser.

New accounts filing requirements

The new Statutory Instrument removes the option for small companies to file abbreviated accounts at Companies House. This is again, with effect for accounting periods beginning on or after 1 January 2016.

Abbreviated accounts were only prepared for filing purposes at Companies House and contained significantly less information than the company’s full accounts. This option was used by many small companies to reduce the amount of company financial information that was put on public record.

The fact that abbreviated accounts are no longer accepted means financial information on public record relating to your company may increase. There are, however, ways to mitigate this. It is essential that you discuss the best option for you with your adviser.

Abridged accounts

One option available to you is abridged accounts, a new way of preparing accounts under FRS102. This option allows for certain items in the statutory accounts format to be combined. It is possible to abridge either the balance sheet, profit and loss account or both. An abridged profit and loss account excludes both turnover and cost of sales.

It is important to note that abridged accounts are not a replacement for abbreviated accounts. Previously, it may have been the case that abbreviated accounts would be prepared for filing and full accounts prepared for shareholders. Abridged accounts are prepared for shareholders and for filing purposes, although they may be filleted before filing (see below).

All shareholders must agree to the preparation of abridged accounts each year. You must also file a statement at Companies House that all members have agreed to the abridgment.

Preparing abridged accounts may be a good option if your company has sensitive balance sheet notes that you would prefer not to disclose publically, however, abridged accounts may mean that your accounts do not contain all the information which a user (e.g. lender or potential lender) could require or expect to see.

Filleted accounts

Companies have the option to ‘fillet’ their accounts when filing at Companies House. Filleted accounts do not include a profit and loss account, related notes and/or director’s report. Like abbreviated accounts, filleted accounts are only prepared for filing at Companies House, and are therefore not the version that will be prepared for shareholders.

Unlike abbreviated accounts, the balance sheet notes will still be included and therefore you may find that you are disclosing more information on public record than previously

Going forward

Failure to file your accounts in line with the new requirements may result in your accounts being rejected by Companies House. Again, it is crucial that you discuss your individual circumstances with your adviser to determine the best option for you.

4 May 17
Simon Read, Cassons