The draft Small Companies (Micro-Entities’ Accounts) Regulations 2013 (the “Regulations”) were published by the Government on 25 October 2013 and are intended to have effect in respect of the financial years ending on or after 30 September 2013. As part of the Government’s red tape challenge, their main objective is to cut regulation and to reduce burdensome account filing obligations for ‘micro-companies’. This will be good news for smaller businesses, particularly those which do not have dedicated finance teams behind them, as it will enable them to focus on growing their business rather than dealing with unnecessary red tape.
Once implemented, the Regulations will introduce an exemption from filing abbreviated accounts for ‘micro-companies.’ Instead, micro-companies will have the option to prepare an abridged balance sheet and profit and loss account. Only the abridged balance sheet will need to be filed at Companies House. To qualify as a ‘micro-company’ the company must meet at least two of the following conditions:
- Its annual turnover must not exceed £632,000;
- Its balance sheet total must not exceed £316,000; and/or
- Its number of employees must not exceed 10.
More importantly, regulation 5 of the Regulations will have a significant impact on the ‘true and fair view’ principle. Currently, directors have an obligation not to approve the company’s accounts unless they give a true and fair view of the company’s financial position. However, regulation 5 will amend the relevant provisions of the Companies Act 2006 (namely sections 393 and 396) so that they will:
- Identify the relevant considerations for directors of micro-companies to take into account when deciding whether to approve accounts on the basis that they give a true and fair view;
- Allow directors to disregard certain accounting standards, which would otherwise require the accounts to contain information beyond that required by micro-entity minimum accounting standards. However, directors should be aware that if the accounts contain an item of information additional to the micro-entity minimum accounting items, they must take any provision of an accounting standard which relates to that item into consideration;
- Introduce a presumption that micro-companies’ accounts, which comply with certain minimum requirements, give a true and fair view; and
- Prescribe the statement to appear above the signature in the balance sheet.
Ultimately, the proposed Regulations will give small businesses the option to no longer comply with the same demanding financial reporting requirements as other larger entities. Since the exemptions are optional, it will be at the owners/directors discretion to assess the possible effect of reduced disclosures on their company and which form of financial reporting statement best meets their company’s needs.
On November 1, 2013