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1. What exemptions are available?
Certain small or medium-sized companies may prepare accounts for their members under the special provisions of sections 246 and 246A of the Companies Act 1985. In addition, they may prepare and deliver abbreviated accounts to the Registrar.
This chapter explains the exemptions available to small and medium-sized companies. Certain small companies with a turnover of less than £1 million (£250,000 for companies that are charities) and assets of less than £1.4 million can claim exemption from audit. This is dealt with in chapter 4.
The period accounts have to cover and the time allowed for sending them to Companies House is covered in chapter 2.
2. What is a small or medium-sized company?
Public companies and certain companies in the regulated sectors cannot qualify as small or medium-sized companies. For other companies, the size of the company (and in the case of a parent company the size of the group headed by it) in terms of its turnover, balance sheet total (meaning the total of the fixed and current assets) and average number of employees determines whether it is classed as small or medium-sized.
The exact conditions for qualifying as a small or medium-sized company are given below.
To be a small company, at least two of the following conditions must be met:
- annual turnover must be £2,800,000 or less;
- the balance sheet total must be £1,400,000 or less;
- the average number of employees must be 50 or fewer.
Please note: New accounting exemption thresholds apply to financial years ending on or after
30 January 2004.
To be a small company, at least 2 of the following conditions must be met:
- annual turnover must be £5.6 million or less;
- the balance sheet total must be £2.8 million or less;
- the average number of employees must be 50 or fewer.
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To be a medium-sized company, at least two of the following conditions must be met:
- annual turnover must be £11,200,000 or less;
- the balance sheet total must be £5,600,000 or less;
- the average number of employees must be 250 or fewer.
Please note: New accounting exemption thresholds apply to financial years ending on or after 30 January 2004.
To be a medium-sized company, at least 2 of the following conditions must be met:
- annual turnover must be £22.8 million or less;
- the balance sheet total must be £11.4 million or less;
- the average number of employees must be 250 or fewer.
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If the company is a parent company, it cannot qualify as a small or medium-sized company unless the group headed by it is also small or medium-sized. The exact conditions for qualifying as a small or medium-sized group are given at question 4.
Generally, a company qualifies as 'small' or 'medium-sized' in its first financial year, or in any subsequent financial year if it fulfils the conditions in that year and the year before. If the company ceases to be small or medium-sized, the exemption continues for the first year that the company does not fulfil the conditions. And the exemption continues uninterrupted if the company reverts to being small or medium-sized the following year - see the table below.
If you think the company might qualify as small or medium-sized, you should consult a professional accountant before you prepare 'special-provision' accounts. If you abbreviate the accounts, you will also need a special auditor's report for filing with the Registrar, confirming that the company qualifies to produce such accounts. This report is not needed if the company is exempt from audit - see chapter 4 on very small companies.
The following table may help you decide whether you qualify to prepare 'small' or 'medium' accounts.
The table applies to small companies. For medium-sized companies simply substitute 'medium-sized' for 'small'.
| Year 1 |
Year 2 |
Year 3 |
Qualified in: |
| |
1st financial year |
| small |
|
|
Yes |
| not small |
|
|
No |
| |
2nd financial year |
| small |
small |
|
Yes |
| small |
not small |
|
Yes |
| not small |
small |
|
No |
| |
3rd financial year |
| small |
small |
not small |
Yes |
| small |
not small |
small |
Yes |
| not small |
small |
small |
Yes |
| small |
not small |
not small |
No |
| not small |
small |
not small |
No |
| not small |
not small |
not small |
No |
3. What does a small or medium-sized company have to deliver to the Registrar?
The company can deliver the accounts which were prepared for its members under the special provisions of part VII of the Companies Act 1985, or it can deliver an abbreviated version of these accounts.
Abbreviated accounts of a small company must include:
- The abbreviated balance sheet and notes; and
- a special auditor's report (unless the company is also claiming audit exemption - see chapters 4 and 5).
Abbreviated accounts of a medium-sized company must include:
- the abbreviated profit and loss account;
- the full balance sheet;
- a special auditor's report;
- the directors' report; and
- notes to the accounts.
The special auditor's report should state that in the auditor's opinion the company is entitled to deliver abbreviated accounts and that they have been properly prepared in accordance with section 246(5) or (6) or 246A(3) of the Companies Act 1985, as the case may be.
The balance sheet (and if appropriate, the directors' report) must contain a statement that the accounts are prepared in accordance with the special provisions in Part VII of the Companies Act 1985 relating to small or medium-sized companies, as the case may be.
4. Are there special rules for small and medium-sized groups?
Yes, a parent company need not prepare group accounts or send them to the Registrar if the group is small or medium-sized and none of its member companies is: a public company, a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity, or a person who carries on insurance market activity.
To qualify as small, a group of companies must meet at least two of the following conditions:
- aggregate turnover must be £2,800,000 net (£3,360,000 gross) or less;
- the aggregate balance sheet total must be £1,400,000 net (£1,680,000 gross) or less;
- the aggregate average number of employees must be 50 or fewer.
Please note: New accounting exemption thresholds apply to financial years ending on or after 30 January 2004.
To qualify as small, a group must meet at least two of the following conditions:
- aggregate turnover must be £5.6 million net (£6.72 million gross) or less;
- the aggregate balance sheet total must be £2.8 million net (or £3.36 million gross);
- the aggregate average number of employees must be 50 or fewer.
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To qualify as medium-sized, a group must satisfy at least two of the following conditions:
- its aggregate turnover must be £11,200,000 net (£13,440,000 gross) or less;
- the aggregate balance sheet total must be £5,600,000 net (£6,720,000 gross) or less;
- the aggregate average number of employees must be 250 or fewer.
| Please note: New accounting exemption thresholds apply to financial years ending on or after 30 January 2004.
To qualify as medium-sized, a group must meet at least two of the following conditions:
- aggregate turnover must be £22.8 million net (or £27.36 million gross);
- the aggregate balance sheet total must be £11.4 million net (or £13.68 million gross);
- the aggregate average number of employees must be 250 or fewer.
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5. What if a small or medium-sized company is required to prepare group accounts?
A small parent company which has prepared individual accounts for its members using the special provisions of section 246(2) or (3) of the Companies Act 1985, may choose to prepare group accounts under the special provisions of section 248A. However, a small group cannot file abbreviated accounts at Companies House. Group accounts prepared under section 248A must contain a statement above the signature on the balance sheet, confirming that they are prepared in accordance with the special provisions of Part VII of the Companies Act 1985 relating to small companies.
If a medium-sized company decides to prepare group accounts, they must be full group accounts.
Format of accounts
The format of the accounts must follow the relevant Schedules to the Companies Act 1985. The provisions relating to small and medium-sized companies are in Schedules 4, 5, 6, 8 and 8A.
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6. How long do I have to deliver accounts to Companies House?
The same time applies as for all other accounts. The same penalties are imposed for late filing. See chapter 2.
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