Big changes in financial reporting for smaller entities take effect

Corporate Article

06 January, 2016

The new financial reporting requirements set out in the Companies, Partnership and Groups (Accounts and Reports) Regulations 2015 come into effect for all companies with financial years beginning on or after 1st January 2016. Prior to this date the new provisions had been optional, company directors having had the choice to adopt the new rules or stick with the previous regime for another year. The main thrust of the changes is to reduce the burden of financial reporting and audit obligations for smaller companies by enabling more of them to access the small companies regime and relaxing the requirements for those companies who do qualify.

In order to qualify as "small", a company or group still must meet at least two out of three qualifying conditions, however the maximum thresholds have been amended as follows:

  • Annual turnover of not more than £10.2m (previously this limit was £6.5m);
  • Balance sheet total of not more than £5.1m (previously £3.26m); or
  • No more than 50 employees (no change).

This will enable a considerable number of companies who were previously categorised as medium sized to take advantage of the less burdensome small companies regime. The definition of an ineligible company has also been amended - a private company that is a member of a group that includes a public company will no longer be automatically excluded, the reference to public company having been replaced by "traded company" (i.e. a company with voting shares admitted to trading on an EEA regulated market, such as the main market of the London Stock Exchange). This will no doubt come in handy for subsidiaries of companies admitted to trading on, for example, the AIM sub-market, some of whom will now be able to qualify as small.

A further amendment is a new rule permitting small companies to prepare an abridged balance sheet and an abridged profit and loss account if all of the company's shareholders approve. However, it is no longer possible to file at Companies House an abbreviated version of the accounts prepared for shareholders. Generally this means that if full accounts are prepared for the shareholders these full accounts must be filed, however small companies do retain the option not to file the profit and loss account and/or the directors' report at Companies House regardless of whether the members' accounts are full or abridged.

Other changes include a significant reduction in the number of mandatory notes that must be included in a small company's accounts, which now number just 13. All companies may also now use alternative layouts when preparing balance sheets and profit and loss accounts, on the proviso that the information given is at least equivalent to that required by the standard formats.
Although the Regulations specifically disapplied LLPs from their remit, similar changes have been proposed for LLPs with regulations due in summer 2016. Despite these new regulations having yet to be finalised, the intention is for these regulations to also apply to LLPs with financial years commencing on or after January 2016 - so LLPs and their advisors are encouraged to watch this space.

If you have any questions about the changes to the law on financial reporting or require assistance on any other Corporate and Restructuring matter, please do not hesitate to contact Pauline Rigby on 01254 222357 or email Pauline Rigby


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