Small Company Accounting

We would be happy to assist you in providing specific advice for your company.

UK GAAP for small companies 

• • to use the same accounting standard as non-small UK companies – FRS 102
  • to use the FRS 102 reduced disclosure regime (section 1A), or
  • where relevant, to apply an alternative standard – The Financial Reporting Standard applicable to the Microentities – FRS 105.

Size limits for small and micro-entities

Turnover:  £15m (previously £10.2m)

Total assets:  £7.5m (previously £5.1m)

Employees:  50

The size limits to qualify as a micro-entity are set out below: 

Turnover:  £1m (previously £632,000)

Total assets:  £500,000 (previously £316,000)

Employees:  10

A company needs to meet two out of three of the above criteria for two consecutive years to qualify as a small or micro company, unless it is the first year of the company’s existence, in which case only that year has to be considered. The turnover limit is adjusted if the financial year is longer or shorter than twelve months.

There are certain exclusions from the above small and micro-entity size limits which are set out in the Companies Act 2006. Certain types of entity are prohibited from preparing micro-entity accounts for example charities. 

Small companies previously had the option of not filing their profit and loss account and/or directors’ report at Companies House, known as filing ‘filleted’ accounts. Small companies have the option of preparing less detailed accounts (abridged accounts) for members, providing every member agrees annually, and will be able to choose to abridge the balance sheet, the profit and loss account or both. Charities are also prohibited from preparing abridged accounts. 

Contents of micro-entity accounts 

Notes of the following should be disclosed at the foot of the balance sheet: 

• • off-balance-sheet arrangements
  • directors’ advances, credits and guarantees, and
  • guarantees, contingencies and other financial commitments.

Only the balance sheet and the footnotes need to be filed at Companies House. The profit and loss account does not need to be filed though this is likely to change in the near future as a result of secondary legislation intended to support the Economic Crime and Corporate Transparency Act. It is expected that small companies will be required to file a profit and loss account with Companies House in future).

The company does not need to produce (nor file) typical small company notes such as: 

• • accounting policies
  • post balance sheet events, and
  • related party transactions. 

Fair value accounting and alternative accounting rules cannot be applied in micro-entity accounts, meaning no revaluations or measurement at fair value is permitted.

Contents of FRS 102 1A accounts

The financial statements of a small entity must give a true and fair view of the assets, liabilities, financial position and profit or loss of the small entity for the reporting period.

A complete set of financial statements of a small entity must include all of the following:

 – a statement of financial position as at the reporting date

 – an income statement for the reporting period, and

 – notes to the accounts.

A statement of cashflows is not required.

The following may however be required in order to show a true and fair view: 

 – when a small entity recognises gains or losses in other comprehensive income it is encouraged to present a statement of total comprehensive income, and

 – when a small entity has transactions with equity holders it is encouraged to present a statement of changes in equity or a statement of income and retained earnings.

In relation to the notes of the accounts one significant exemption is available in relation to related party transactions. Only material related party transactions which are not concluded under normal market conditions will need to be considered for disclosure.

Revaluation / fair value of assets

Fair value accounting is not permitted under FRS 105. By contrast, FRS 102 Section 1A permits (and in some cases requires) some assets to be measured at fair value annually. 

The following assets and liabilities are most significantly impacted by fair value accounting under Section 1A: 

• • Investment properties, for example, those properties held to earn rental income, should be revalued every year to fair value. 
  • Forward foreign currency contracts require restatement to their fair value at the balance sheet date. 
  • Loans payable or receivable (for example to or from a director) falling due more than one year, with a nil or below-market rate of interest, must be measured at the present value of future cash flows, however, there is an optional relaxation of this requirement permitted within FRS 102 for small entities, in certain circumstances. 

Deferred tax 

FRS 105 does not allow companies to recognise deferred tax. By contrast, FRS 102 Section 1A requires deferred tax to be provided on fair value adjustments, and therefore likely to occur more frequently than before. 

How we can help

We will be very pleased to discuss the impact on your small company of which accounting standard is to be used. If you would like to discuss these issues in more detail, please contact us.