Glossary

Definition of a small company for accounting purposes

Clifford McDowell

Definition of a small company for accounting purposes

Company Classifications

The size of a company determines its accounting procedures. Not all companies need to prepare and submit full and detailed accounts so it’s useful to know what the Definition of a small company for accounting purposes is.

There are three size classifications and a subcategory for companies, each of which have their own filing requirements, these are:

  • Small
    • Micro-Entities
  • Medium
  • Large

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 for more information.

Small Company Definition

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 GBP 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 – What to Include

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

Generally, small company accounts prepared for members 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.

Some companies are exempt from auditing requirements. This exemption should be checked before the accounts are filed.

Balance Sheet

The director must sign, and include their printed name, on the balance sheet on behalf of the board.

The balance sheet must also include a statement, above the director’s signature and printed name, declaring that all accounts have been prepared according to the special small companies regime in the Companies Act 2006.

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 can file a copy of the accounts which it prepared for its members, or an abbreviated version of those accounts.

Unless the company is exempt from the auditing requirement, it is important to include the audit report at this stage.

The Auditor’s Report

It’s important that the auditor’s report states two things:

  • The company’s allowed to provide abbreviated accounts, in line with s.444(3) of the Act
  • The accounts have been prepared according to the correct guidelines – namely, the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008

Summary

To recap:

  • Small companies are not obliged to deliver copies of the directors’ report or the profit and loss account to Companies House
  • Small companies preparing Companies Act accounts can deliver an abbreviated balance sheet
  • Small companies preparing International Accounting Standards accounts must still deliver a full balance sheet to Companies House

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