Times are Changing! (Well, Accounting Standards are Anyway…)

When we prepare a set of accounts for a limited company, one of the first things we do is work out what size the company is.  This will determine how we prepare the accounts, and which set of rules (standards) we will follow.  The general rule is that the smaller the company is, the smaller the accounts can be – you wouldn’t expect a one director/shareholder company’s accounts to be in the same format as those of a large listed company!  Previously we had small, medium and large companies, but recently a new size has been added…. micro companies.  Micro, small and medium companies get certain exemptions from the full accounting standards (known as UK GAAP – or generally accepted accounting practice) in terms of how certain items are treated, how the accounts look, and how much information there is in them.

Whichever size your company falls into, there are changes ahead, but there may be options and opportunities too!

In a series of 5 blogs, we will explore some of the key changes, when they happen, and how they might affect you and your business.

What size is my company?

While this might appear to be a straightforward question, with a straightforward answer, you’ve guessed it…. it’s not!

In order to qualify for the exemptions available by being a smaller company, the company has to meet two out of three criteria for two successive years.  It follows that in order to no longer qualify, the limits have to be breached for two successive years.   There is always that “year of grace”.  Of course if it’s the first year, you only have to meet the criteria for that year in order to qualify for the reduced rules.

Some of the size criteria in place now will be changing (for the most part, the limits are increased) for accounting periods starting 1 January 2016 onwards.  They are:

Micro Small Medium
Turnover £632,000
(unchanged from Jan 16)
£6.5m

(£10.2m from Jan 16)

£25.9m

(£36m from Jan 16)

Gross Assets £316,000

(unchanged from Jan 16)

£3.26m

(£5.1m from Jan 16)

£12.9m

(£18m from Jan 16)

Average Employees 10

(unchanged from Jan 16)

50

(unchanged from Jan 16)

250

(unchanged from Jan 16)

So what are the implications of a company being a different size?

Micro companies can prepare very small accounts, with a simplified profit or loss and balance sheet, no directors’ report and very few notes.  The profit or loss account is not filed at Companies House.

Small companies are required to have a full balance sheet and profit or loss account directors’ report, plus more notes than a micro company.  At the moment, small companies have the option of filing abbreviated accounts at Companies House, which are an abridged version of the full accounts – there’s no directors’ report, no profit or loss account and less notes.

Medium companies’ full accounts include (in addition to the above) a strategic report, a cash flow statement and even more notes.  When filing at Companies House, medium companies file their full accounts, but without the detailed profit and loss account – the main statutory profit and loss account is filed.

As you can see, the increase in the small company thresholds will mean that more companies can take advantage of the exemptions that are afforded to them.  There is more to the story however, as the size limits aren’t the only things that are changing…..

If you have any queries on the above, please get in touch on 0116 242 3400.

Coming soon….. “Goodbye Abbreviated Accounts…..”

Katie Kettle , Technical Manager

Katie Kettle Colour

 

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