Definition of a Small Company for UK Accounting Purposes

Clifford McDowell

Definition of a small company for UK accounting purposes

Company Definitions

Small Company Definition

The size of a company determines its accounting procedures and also dictates what needs to be submitted to Companies House. It’s worth noting that not all companies need to prepare and submit full and detailed accounts so it’s useful to know what the small company definition for accounting purposes.

Small companies may be part of a group in which case they’ll file differently (See Small Company Filed Accounts).  Companies House defines three size classifications and a subcategory for registered companies, each of which has its own filing requirements, the classifications are:

Small companies include a subcategory, micro-entities, these have less filling requirements than a small company (See Definition of a micro-entity for Accounting purposes).

Small Company Definition and Thresholds

So, what is the definition of a small company for accounting purposes?

The Companies Act 2006 and its associated regulations set out several criteria for a company to qualify as small. To qualify as a small company, at least two of the following conditions must be met.

  • The company’s annual turnover doesn’t exceed £6.5 million
  • The balance sheet total (meaning, the total of the fixed and current assets) doesn’t exceed £3.26 million
  • The company employs no more than 50 personnel

Small companies have less onerous and detailed accounting responsibilities because of their smaller turnover and asset holdings. This stipulation saves smaller companies time, money, and resources when preparing their financial accounts — all of which are at a premium for smaller companies.

Small Company Accounts – The requirements

Although smaller companies prepare shorter accounts for HMRC, they still must provide adequate information to assess the financial status of the company.

Generally, small company accounts need to include:

  • A profit and loss account;
  • A full balance sheet;
  • Notes on the accounts;
  • Group accounts: if the small company’s’ parent chooses to prepare them, they must be signed by a director on behalf of the board and the printed name of that director;
  • A directors’ report, showing the signature of a secretary or a director, and their printed name; and
  • An auditor’s report including the printed name of the registered auditor.

Most small companies are exempt from auditing requirements (See Audit Exemptions for Small Companies and Micro-Entities).

Who Cannot be a Small Company

Not every entity qualifies as a small company for accounting purposes, whatever size it is. For some entities, full and detailed accounts are still expected for accountability reasons.

Companies which cannot qualify as small companies for accounting purposes include:

  • Public companies
  • Companies which are part of a group which includes members who are public companies
  • Companies which are part of a group which includes members who are financial services companies
  • An authorised insurance company
  • A banking company
  • An e-money issuer
  • A MiFID investment firm
  • A UCITS management company
  • A person carrying on insurance market activity
  • Companies with members of ineligible groups

Ineligible Groups

A group is ineligible if any of its members are:

  • Public companies
  • A body corporate (other than a company) whose shares are admitted to trading on a regulated market in an EEA State
  • A person (other than a small company) who has permission under Part IV of the Financial Services and Markets Act 2000 to carry on a regulated activity

There are limited exceptions, and businesses should check their status thoroughly before filing any accounts or assuming they must submit detailed accounts.

What Small Companies Deliver to Companies House

A small company needs to file a copy of their accounts within the filing dates as set out by Companies House when the company was first registered.

In summary, the Definition of a Small Company is:

  • The company’s annual turnover is under £6.5 million
  • The balance sheet total (meaning, the total of the fixed and current assets) doesn’t exceed £3.26 million
  • The company has no more than 50 employees

Small Companies Data in DoordaBiz:

Aside from Tax reporting its also important to understand the different definitions of company sizes because many industries rely on data about companies to make their own business run smoothly. For example, insurers need databases of information about small companies to offer quotes etc.

Small Companies Data API 

Doorda holds extensive data on over 12 Million organisations which allows you to easily identify small companies and append additional information. This includes Regulator Data so you can see if a company has been fined or issued a warning as well as listed directors and charges via DoordaBiz.

You can also garner intelligence on addresses linked to a company via DoordaProperty including rateable values and inspection reports. All data is linked on company number so you can effortlessly see the structure, movements, and activities of a company on many levels.

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