Small Company Accounting

This fact­sheet sets out the choic­es that small com­pa­nies have with regards to prepar­ing accounts and fil­ing them at Com­pa­nies House. The nature of the com­pa­ny’s activ­i­ties, the types of assets which it has and whether exter­nal scruti­ny is required / desired will need to be con­sid­ered.

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

UK GAAP for small companies

Small com­pa­nies, depend­ing on size, have the fol­low­ing options:

• 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 — FRS 105 ‘The Finan­cial Report­ing Stan­dard applic­a­ble to the Micro-enti­ties’.
  

Size limits for small and micro-entities

The gov­ern­ment has uplift­ed the com­pa­ny size thresh­olds, which take effect for peri­ods begin­ning on or after 6 April 2025.

The cur­rent size lim­its to qual­i­fy as a small enti­ty are set out below:

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

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 enti­ties 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 also had the option of prepar­ing less detailed accounts (abridged accounts) for mem­bers, pro­vid­ing every mem­ber agreed annu­al­ly, and then upon fil­ing were able to choose to abridge the bal­ance sheet, the prof­it and loss account or both. Char­i­ties were pro­hib­it­ed from prepar­ing abridged accounts.

Please note, that while the effec­tive date is unknown, leg­is­la­tion chang­ing the fil­ing require­ments for small com­pa­nies has been passed into law. This means that small com­pa­nies will no longer have these options avail­able to them.

Contents of micro-entity accounts

The accounts of a micro-enti­ty are con­sid­er­ably short­er and sim­pler than those oth­er­wise required for a small com­pa­ny. Micro-com­pa­nies are no longer required to pre­pare a Direc­tors’ report.

The prof­it and loss account and bal­ance sheet include less detail. For exam­ple, cur­rent assets are shown in aggre­gat­ed total on the bal­ance sheet rather than being analysed into stocks, debtors and cash.

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

• off bal­ance sheet arrange­ments
• aver­age month­ly employ­ees
• 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 antic­i­pat­ed to change in the near future as a result of sec­ondary leg­is­la­tion intend­ed to sup­port the Eco­nom­ic Crime and Cor­po­rate Trans­paren­cy Act.

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 may need to present a state­ment of total com­pre­hen­sive income, and
• when a small enti­ty has changes in equi­ty oth­er than prof­it and loss it may need to present a state­ment of changes in equi­ty or a state­ment of income and retained earn­ings.

Comparison of FRS 102 1A accounts and FRS 105

The table below sets out the require­ments includ­ing those encour­aged for FRS 102 Sec­tion 1A and FRS 105:

FRS 105 impos­es sim­pler account­ing treat­ment com­pared to FRS 102 Sec­tion 1A. There are numer­ous dif­fer­ences between FRS 102 Sec­tion 1A and FRS 105 but the most sig­nif­i­cant are as fol­lows:

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.

Periodic Review 2024 amendments

The Peri­od­ic Review 2024 amend­ments which will be applic­a­ble for account­ing peri­ods begin­ning on or after 1 Jan­u­ary 2026 intro­duces a five-step mod­el for rev­enue recog­ni­tion into both FRS 102 and FRS 105 but with sim­pli­fi­ca­tions for those prepar­ing finan­cial state­ments under FRS 105. While changes to lease account­ing require­ments for lessees have been made in FRS 102, lease account­ing remains unchanged under FRS 105.