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TECHNICAL ADVISORY SERVICES HELPSHEET

Ineligible companies and groups

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Published: 01 Jan 2016 Updated: 30 Nov 2021 Update History

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Contents

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help members understand when a company or a group is ineligible for the small companies regime.

Introduction

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help members understand when a company or a group is ineligible for the small companies regime. The helpsheet identifies the legislative requirements of the Companies Act 2006, highlights key definitions and offers practical examples to help understand the interpretation of the requirements.

Members may also wish to refer to the following related helpsheets:

The requirements of the act

A company may either be ineligible for the small companies regime because of its own activities or because of being part of an ineligible group.

A group is defined in s474(1) of the Companies Act 2006 as a parent undertaking and its subsidiary undertakings. A company should take care to ensure it has considered the entire group structure for this purpose.

The Companies Act 2006 s384 sets out companies excluded from the small companies regime as follows. The definitions of terms in bold are included in the glossary at the end of this helpsheet.

(1)

The small companies regime does not apply to a company that was at any time within the financial year to which the accounts relate –

(a) a public company,
(b) a company that –
i. is an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company, or
ii. carries on insurance market activityor
iii.is a scheme funder of a Master Trust scheme within the meanings given by section 39(1) of the Pension Schemes Act 2017 (interpretation of Part 1),or
(c) a member of an ineligible group.

(2)

A group is ineligible if any of its members is -

(a) a traded company,
(b) a body corporate (other than a company) whose shares are admitted to trading on a regulated market in an EEA state,
(c) a person (other than a small company) who has permission under Part 4 of the Financial Services and Markets Act 2000 (c. 8) to carry on a regulated activity,
(ca) an e-money issuer,
(d) a small company that is an authorised insurance company, a banking company, a MiFID investment firm or a UCITS management company, or
(e) a person who carries on insurance market activity, or
(f) a scheme funder of a Master Trust scheme within the meanings given by section 39(1) of the Pension Schemes Act 2017 (interpretation of Part 1).

(3)

A company is a small company for the purposes of subsection (2) if it qualified as small in relation to its last financial year ending on or before the end of the financial year to which the accounts relate.

Brexit

For periods commencing after the end of the transition period (31 December 2020), paragraph 2(b) is changed to read as follows:

'a body corporate (other than a company) whose shares are admitted to trading on a UK regulated market’ (see FCA regulated market register)

Examples

The following examples address the implementation of s384 of the Companies Act 2006.

1 Parent listed on NYSE

The US parent of a UK company is an LLC listed on the NYSE. In all other respects the UK company is a small company.

The US parent would not make the group ineligible just because it is listed on the NYSE.

The US LLC does not meet the definition of a company under s1 of the Companies Act 2006 and therefore s384(2)(a) is not relevant in this case. The US LLC does meet the definition of a body corporate (other than a company), so consideration must be given to s384(2)(b).

For periods commencing before 11pm on 31 December 2020, the US LLC would not make the group ineligible because the NYSE is not a regulated market in an EEA state.

For periods commencing after 11pm on 31 December 2020, the US LLC would not make the group ineligible because the NYSE is not a UK regulated market. 

2. Parent listed on the Institutional Financial Securities Market in Malta

The Maltese parent of a UK company is listed on the Institutional Financial Securities Market in Malta. In all other respects the UK company is a small company.

For periods commencing before 11pm on 31 December 2020, the Maltese company would make the group ineligible. The Institutional Financial Securities Market in Malta is a regulated market in an EEA state (see ESMA’s register) and therefore the group is ineligible by virtue of s384(2)(b).

For periods commencing after 11pm on 31 December 2020, due to Brexit-related changes in the wording of s384(2)(b), the Maltese company would not make the group ineligible, because The Institutional Financial Securities Market in Malta is not a UK regulated market (see FCA regulated market register).

3 Company is an associate of a traded company

A UK company (Company A) is an associate of another UK company (Company B) which is listed on the London Stock Exchange. In all other respects Company A is a small company.

Company B’s listing on the London Stock Exchange would not make Company A ineligible. Company A is only an associate of Company B and is therefore not considered to be part of Company B’s group as a group (as defined by s474(1)) is a parent undertaking and its subsidiary undertakings. Company A is not a subsidiary of Company B.

4 Parent company is listed on the AIM market

A UK company (Company A) has a parent company (Company B) which is listed on the AIM market. In all other respects Company A is a small company.

Company B being listed on the AIM market does not make Company A ineligible. This is because AIM is not a regulated market. (See FCA regulated market register to identify UK regulated markets).

5 Parent is an unlisted PLC

A UK company (Company A) has a UK parent (Company B) which is an unlisted PLC. In all other respects Company A is a small company.

An unlisted PLC does not make the group ineligible. Company B does not meet the definition of a traded company as its transferable securities are not admitted to trading on a regulated market. As such Company A is not ineligible.

Company B is ineligible however as it is a public company and therefore it is ineligible by virtue of s384(1)(a).

6 Leaving an ineligible group

A UK company has a December year end. Between January and March, it was a member of a group which included a traded company. The UK company was purchased by an individual on 1 April and left the ineligible group on this date.

As the UK company was a member of an ineligible group for part of the year to which its accounts relate s384(1) would mean that the company would be ineligible.

If in doubt seek advice

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.

Glossary

The below list sets out key definitions for terminology within s384 of the Companies Act 2006. Where there is doubt whether an entity is captured by a financial services definition, a financial services expert should be consulted.

Authorised insurance company

Means a person (whether incorporated or not) who has permission under Part 4A of The Financial Services and Markets Act 2000 (c. 8) to effect or carry out contracts of insurance.
(Companies Act 2006 s1165(2))

Banking company

A person who has permission under Part 4A of The Financial Services and Markets Act 2000 (c. 8) to accept deposits, other than –
(a) a person who is not a company, and
(b) a person who has such permission only for the purpose of carrying on another regulated activity in accordance with permission under that Part.
(Companies Act 2006 s1164(2))

Company

In the Companies Acts, unless the context otherwise requires - “company” means a company formed and registered under this Act, that is—
(a) a company so formed and registered after the commencement of this Part, or
(b) a company that immediately before the commencement of this Part –
i. was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or
ii. was an existing company for the purposes of that Act or that Order, (which is to be treated on commencement as if formed and registered under this Act).
(Companies Act 2006 s1(1))

EEA state

list of countries in the EEA is available from gov.uk.

e-Money issuer

An e-money issuer means – 
(a) an electronic money institution, within the meaning of the Electronic Money Regulations 2011 (SI 2011/99), or 
(b) a person who has permission under Part 4 of  The Financial Services and Markets Act 2000 (c. 8) to carry on the activity of issuing electronic money with the meaning of article 9B of The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544)
(Companies Act 2006 s474(1))

Insurance market activity

Has the meaning given by s316(3) of The Financial Services and Markets Act 2000
(Companies Act 2006 s1165(7))

Insurance market activity means a regulated activity relating to contracts of insurance written at Lloyd’s. 
(Financial Services and Markets Act 2000 s316(3))

Master Trust scheme

Means an occupational pension scheme which –
(a) provides money purchase benefits (whether alone or in conjunction with other benefits),
(b) is used, or intended to be used, by two or more employees,
(c) is not used, or intended to be used, only by employers which are connected with each other, and
(d) is not a relevant public service pension scheme.
(Pension Schemes Act 2017 s(1)(1))

MiFID investment firm

For periods commencing prior to 11pm on 31 December 2020, means an investment firm within the meaning of Article 4.1.1 of Directive 2014/65/EU of the European Parliament and the Council of 15 May 2014 on markets in financial instruments, other than –
(a) a company to which that Directive does not apply by virtue of Article 2 of that Directive,
(b) a company which is an exempt investment firm as defined by regulation 8 (meaning of “exempt investment firm”) of The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (SI 2017/701), and
(c) any other company which fulfils all the requirements set out in regulation 6(3) of those Regulations.

For periods commencing on or after 11pm on 31 December 2020, means an investment firm within the meaning of Article 2.1A of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, other than –
(a) a company which is exempted from the definition of “investment firm” by Schedule 3 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544),
(b) a company which is an exempt investment firm as defined by regulation 8 (meaning of “exempt investment firm”) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017(SI 2017/701), and
(c) any other company which fulfils all the requirements set out in regulation 6(3) of those Regulations.
(Companies Act 2006 s474(1))

Public company

A company limited by shares or limited by guarantee and having share capital – 

(a) whose certificate of incorporation states that it is a public company, and
(b) in relation to which the requirements of this Act, or the former Companies Acts, as to registration or re-registration as a public company have been complied with on or after the relevant date.
(Companies Act 2006 s4(2)) 

Regulated activity

Has the meaning given in section 22 of The Financial Services and Markets Act 2000, except that it does not include activities of the kind specified in any of the following provisions of The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) –
(a) article 25A (arranging regulated mortgage contracts),
(b) article 25B (arranging regulated home reversion plans),
(c) article 25C (arranging regulated home purchase plans),
(ca) article 25E (arranging regulated sale and rent back agreements),
(d) article 39A (assisting administration and performance of a contract of insurance),
(e) article 53A (advising on regulated mortgage contracts),
(f) article 53B (advising on regulated home reversion plans),
(g) article 53C (advising on regulated home purchase plans),
(ga) article 53D (advising on regulated sale and rent back agreements),
(h) article 21 (dealing as agent), article 25 (arranging deals in investments) or article 53 (advising on investments) where the activity concerns relevant investments that are not contractually based investments (within the meaning of article 3 of that Order), or
(i) article 64 (agreeing to carry on a regulated activity of the kind mentioned in paragraphs (a) to (h)).
(Companies Act 2006 s474(1))

Regulated market

For periods commencing before 11pm on 31 December 2020, regulated market has the same meaning as in Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (see Article 4.1.21).

For periods commencing on or after 11pm on 31 December 2020, regulated market has the meaning given in Article 2.1.13 of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 and amending Regulation (EU) No 648/2012.
(Companies Act 2006 s1173(1)) 

database of regulated markets is maintained by the European Securities and Markets Authority. To generate a list from the database, select ‘Regulated Market’ from the ‘Entity type’ field and press ‘Search’.

The UK is no longer included in the ESMA register but a list of UK regulated markets is maintained by the FCA. It is worth noting that regulated markets include the London Stock Exchange, NEX Exchange and ICE Futures Europe. The AIM market is not a regulated market.

Traded company

For periods commencing before 11pm on 31 December 2020, a company any of whose transferable securities are admitted to trading on a regulated market.

For periods commencing on or after 11pm on 31 December 2020, a company any of whose transferable securities are admitted to trading on a UK regulated market.

UCITS management company

Has the meaning given by the Glossary forming part of the Handbook made by the Financial Conduct Authority under The Financial Services and Markets Act 2000 (c. 8).
(Companies Act 2006 s474)

UK regulated market

Has the meaning given in Article 2.1.13A of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 and amending Regulation (EU) No 648/2012.
(Companies Act 2006 s1173(1))

A database of regulated markets is maintained by the European Securities and Markets Authority. To generate a list from the database, select ‘Regulated Market’ from the ‘Entity type’ field and press ‘Search’.

Within the UK it is worth noting that regulated markets include the London Stock Exchange, NEX Main Board, ICE Futures Europe and Euronext London markets. The AIM market is however not a regulated market.

Terms and conditions

© ICAEW 2021  All rights reserved.

ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.

ICAEW members have permission to use and reproduce this helpsheet on the following conditions:

  • This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
  • The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.

For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas.

Changelog Anchor
  • Update History
    01 Jan 2016 (12: 00 AM GMT)
    First published
    30 Nov 2021 (12: 00 AM GMT)
    Changelog created, helpsheet converted to new template
    30 Nov 2021 (11: 00 AM GMT)
    Updates to Brexit-related definitions in the glossary.
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