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BIS consults on deregulatory changes for LLPs and qualifying partnerships as a result of the UK implementation of the EU Accounting Directive

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23 Nov 2015

The Department for Business, Innovation and Skills (BIS) has issued a consultation on deregulatory changes for LLPs and qualifying partnerships as a result of the UK implementation of the EU Accounting Directive (‘the LLPs and qualifying partnerships consultation’). Comments are requested by 21 December 2015.

The European Union published the EU Accounting Directive 2013/34/EU (‘the Directive’) on 26 June 2013. The Directive aimed to simplify the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union.

Following a consultation by BIS in August 2014 and government response in January 2015, regulations were made (the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015) which implemented the EU Accounting Directive for limited companies.  Changes were also made by the Financial Reporting Council (FRC) to UK accounting standards in July 2015 to implement those changes.  At that time, the Government indicated that it would be consulting separately for LLPs and qualifying partnerships.

The LLPs and qualifying partnerships consultation proposes to introduce similar changes to the regulatory framework for LLPs. 

The main changes proposed by BIS are to:

  • Increase thresholds used to determine the size of LLPs. The thresholds for determining what is a small LLP will, as for companies, be raised to the top end of the range permitted by the Directive. An LLP will be small if it meets at least two of: total assets <£5.1m, turnover <£10.2m, <50 employees.  An LLP will be medium-sized if it meets at least two of: total assets<£18m, turnover <£36m, <250 employees.
  • Limit the number of mandatory notes required of small LLPs.  Small LLPs will be required to provide thirteen disclosure notes as indicated in the consultation.
  • Introduce a micro-entity regime for LLPs allowing the smallest LLPs in the UK access to a much less burdensome administrative regime.  An LLP will qualify if it meets at least two of: total assets <316,000, turnover <632,000 and average number of employees <10.
  • Propose to introduce a micro-entity regime for qualifying partnerships.  This would be available to those general partnerships and limited partnerships that are Qualifying Partnerships under the Partnerships (Accounts) Regulations 2008 (SI 2008/569) as amended by the Companies and Partnerships (Accounts and Audit) Regulations 2013 (SI 2013/2005) and which meet the eligibility criteria.
  • Provide LLPs with the opportunity to use alternative layouts when preparing their profit and loss account and balance sheet, provided that the information given is at least equivalent to the information otherwise required by the standard formats.
  • Allow small LLPs to prepare an abridged balance sheet and profit and loss account if approved by all members of an LLP.
  • Amend the approach in relation to the writing off of goodwill and development costs. In the rare situations where the useful economic life cannot be reliably estimated, the government is proposing that they should be amortised over a maximum of ten years (the top end of the range permitted by the Directive).  Reversals of goodwill impairment will be prohibited.
  • Permit the use of the “equity method” in individual LLP statements.

In addition to aligning the accounting requirements between companies and LLPs, BIS also proposes to align the auditing provisions as well.  The LLPs and qualifying partnerships consultation also includes changes to:

  • The audit exemption criteria for small LLPs including increasing the thresholds for the exemption.
  • The audit exemption for LLPs who receive a parental guarantee.  This exemption will no longer be available for LLPs with securities are traded on a regulated market in an EEA state.
  • The dormant LLPs audit exemption.  For LLPs whose securities are traded on a regulated market this exemption will no longer be available.

It is proposed that the new framework will apply for financial years beginning on or after 1 January 2016.  The consultation asks a question about whether early adoption should be permitted for financial years beginning on or after 1 January 2015.

*On 30th November BIS published an update to the original consultation document to clarify that the question of whether specific thresholds for the audit exemption should be introduced, and if so, at what level, is still under consideration*.

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