Entitlement to the small and micro-entities regime
To be entitled to apply the small companies regime, the company must meet criteria set out in the Companies Act 2006 (CA 2006). Qualitative factors are used to establish whether a company is excluded from the small companies regime (‘ineligible’) because of its nature, or because it is a member of an ineligible group. A company will additionally need to assess whether it qualifies as small by meeting the relevant size thresholds. If the company is a parent company, it will also need to consider whether the group headed by it qualifies as small.
The steps required to establish whether a company is entitled to apply the micro-entity regime are broadly similar to those for small companies but there are further exclusions and reduced size thresholds.
Entities that are not companies
Similar requirements and exemptions are available to other types of entity that do not report under the Companies Act but are required or choose to prepare accounts that are intended to give a true and fair view, for example LLPs.
Simplifications available to small entities
The small companies regime allows the preparation of less detailed accounts than those required for large and medium-sized companies. An entity entitled to apply the small companies regime is not obliged to prepare accounts under this regime and can instead opt to apply either the medium or large companies regime.
Companies entitled to and choosing to apply the small companies regime are within the scope of Section 1A Small Entities of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which sets out the minimum disclosure requirements.
There are certain simplifications that are available to all entities that are entitled to prepare accounts for the year in accordance with the small companies regime, irrespective of whether they choose to apply Section 1A of FRS 102.
There are further simplifications which are only available when a small entity applies Section 1A Small Entities.
For a more detailed analysis of the simplifications above visit Small companies reporting simplifications.
For a comprehensive guide to the simplifications and requirements for entities qualifying for the small entities regime read the Financial Reporting Faculty’s factsheet Preparing and filing UK small entity accounts (Financial Reporting Faculty members only).
Accounting and disclosure simplifications available to micro-entities
The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 set out the statutory rules on the format and the contents of micro-entity accounts (referred to as the minimum accounting items).
A company entitled to the micro-entities regime can choose to prepare a simplified balance sheet and profit and loss account with only limited disclosures, when applicable, required at the foot of the balance sheet. Accounts prepared using the micro-entities regime are presumed by CA 2006 to give a true and fair view if they include the limited disclosures required by law.
Companies entitled to and choosing to apply the micro-entities regime must apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.
For a more detailed analysis of the simplifications above visit Simplifications for micro-entities.
A small entity has the option not to file a copy of the profit and loss account and/or directors’ report with the Registrar of Companies. If this option is taken, the balance sheet must contain a statement that the accounts have been delivered in accordance with the provisions applicable to the small companies regime. Additionally, when the profit or loss account is not filed there is a requirement for the balance sheet to disclose this fact.
Further details on the filing options and requirements for small companies can be found in the Financial Reporting Faculty’s factsheet Preparing and filing UK small entity accounts (Financial Reporting Faculty members only).
A micro-entity has the option not to file its profit and loss account. As for a small entity, there are a number of statements required when filing the annual accounts with the Registrar of Companies.
Small and micro-entity reporting compared
An entity which is entitled to and choosing to apply the micro-entities regime must apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. The micro-entities regime is optional and therefore entities may wish to consider the differences between applying FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 when deciding the most suitable regime for preparing their financial statements.
FRS 105 is based on FRS 102 but with significant simplifications; for example, there is no requirement to account for deferred tax and there are no options to revalue fixed assets or capitalise borrowing costs.
Notes to the accounts are not required (although some limited information must be presented at the foot of the balance sheet).
When considering which standard to apply, an entity should consider the needs of different stakeholders. The level of detail offered by FRS 105 may not always be considered sufficient.
Find out more about the key accounting differences between FRS 105 and FRS 102 and the practical considerations when choosing between the small and micro-entities regime by visiting our online guide Small and micro-entity reporting compared.
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