This means that they can use simplified formats for the balance sheet and profit and loss account and are only required to provide notes to the financial statements concerning guarantees and other financial commitments and certain transactions with directors. A set of accounts will still need to be filed at Companies House, but the profit and loss account may be excluded. A key change is that the same ‘abridged’ accounts must be provided to the shareholders and filed at Companies House, making the old option to file ‘abbreviated accounts’ redundant for micro-entities. 

The Regulations are only relevant to companies that qualify as ‘micro-entities’. The definition of a micro-entity under the Regulations is a company (or group) that satisfies at least two of the following three requirements in relation to a financial year: 

• Turnover: Not more than £632,000 (pro-rated appropriately where a company’s year is shorter or longer than a calendar year);
• Balance sheet total (i.e. gross assets): Not more than £316,000; and
• Average number of employees: Not more than 10. 

A company must meet at least two of these limits in two consecutive years to qualify as a micro-entity and, once qualified, must exceed at least two of these limits for two consecutive years to cease to qualify.  

The Regulations exclude certain types of company, such as charitable companies and parent companies that are required or choose to prepare consolidated financial statements, from the micro-entity regime. 

When the proposals were originally issued, respondents expressed concern around the impact of the changes on the “true and fair” principle, most notably the relationship between accounting standards and the exemptions for micro companies. The amended law provides that the limited information required for micro companies is deemed to give a true and fair view and so there is no need to consider whether any additional notes beyond those specified are necessary for this purpose.  

Now the Regulations have been approved, it is likely that amendments to the Financial Reporting Standard for Smaller Entities (FRSSE) will be required, not least to allow micro-entities the ability to state compliance with the FRSSE whilst taking advantage of the reduced disclosures enabled by the Regulations. 

Click for:

• Approved Regulations ‘The Small Companies (Micro-Entities’ Accounts) Regulations 2013 (link to approved Regulations).
• UK Accounting Plus earlier story on the Regulations.