What you need to know about Micro-Entities’ Accounts

The Small Companies (Micro-Entities’ Accounts) Regulations 2013 became effective for financial years ending on or after 30 September 2013. These regulations introduced a simpler reporting regime for a new sub-category of small company, the micro-entity.

What is a micro-entity?

A company meets the qualifying conditions for a micro-entity if it meets at least two out of three of the following thresholds:

• Turnover Not more than £632,000;
• Balance sheet total Not more than £316,000;
• Average number of employees Not more than 10.

The criteria must be met in two consecutive years for a company to qualify as a micro-entity and must be exceeded in two consecutive years for a company to cease to qualify.

Some entitles are excluded from being treated as micro-entities, if they are, or were at any time during the financial year, one of the following:

• a limited liability partnership (now included – see * below)
• a qualifying partnership (now included – see * below)
• a public limited company
• a charitable company *a member of an ineligible group
• a charitable company
• a member of an ineligible group

In general a small owner managed business operating under the thresholds detailed above would qualify to be treated as a micro-entity.

*Following a change in legislation, limited liability partnerships (LLPs) and qualifying partnerships can now apply the micro-entities regime and FRS 105. The Financial Reporting Standard applicable to Micro-entities Regime has been amended to reflect this. The amendments to FRS 105 are applicable to accounting periods beginning on or after 1 January 2016, with early application permitted from 1January 2015 in conjunction with the changes in legislation.

What do micro-entity accounts look like?

The amount of information included in a set of micro-entity accounts is significantly less than that included in small company accounts; we list below some key features:

• a simpler balance sheet and profit and loss account
• limited director’s report
• no notes to the accounts
• footnotes to the balance sheet regarding transactions with directors, contingent liabilities and capital commitments
• no re-valuations
• all assets measured at historical cost with no fair value adjustments allowed
• balance sheet only to be filed at Companies House
• no deferred tax
• presumed in law to give a true and fair view.

The micro-entitles regime is optional for eligible companies and so directors of entities that qualify should consider whether it might be beneficial for them to take advantage of this reduced disclosure regime. It will, of course, depend upon the individual circumstances of each business and directors may wish to take into account the points raised below:

Will adopting the micro-entities regime save me time and fees?

Whilst the accounts themselves are simpler it should be recognised that the time and therefore the fees associated with preparing a set of accounts exist mainly in the aggregation of accounting data and not in the presentation.

Accordingly if you maintain an accurate and reconciled accounting system the preparation and filing of micro-entity accounts may reduce your professional fees.

If, however, you rely on your accountant to collate your accounting information from source records or to construct your accounts from limited accounting records it is unlikely that the adoption of the micro-entities regime will reduce your accountancy fees dramatically, if at all.

Will adopting the micro-entities regime impact a company’s ability to secure external funding?

The filed accounts will include very limited information for potential creditors/lenders to base decisions on. It may be the case that additional non statutory analysis will still need to be undertaken to satisfy external agencies and this in turn may slow down lending decisions and increase accountants fees.

What happens in the event of an investigation by HMRC?

When preparing financial statements accountants often uncover errors and omissions in respect of VAT, benefits and PAYE, etc. Part of an accountant’s role is to assist clients in identifying and correcting these errors and omissions. If directors choose to exclude accounting expertise by preparing their own limited disclosure micro-entity accounts they could ultimately be storing up future problems and costs in relation to HMRC investigations.

What information is available to external agencies and competitors?

The information held at Companies House in relation to your business will decrease, thus leaving less information in the public domain for competitors to review.

HMRC are required to accept micro-entity accounts along with a company’s corporation tax return and so there is no disclosure to HMRC of dividends, related party transactions, accounting policies or notes to support the balance sheet figures.

Our approach

At McCabe Ford Williams we are committed to providing our clients with a quality, comprehensive and cost effective service and so our approach to micro-entity accounts is to prepare them for clients who may wish to take advantage of the reduced disclosure framework but to accompany those accounts with a set of non-statutory accounts which include a detailed trading profit and loss account and schedules to support the major balance sheet codes. The level of analysis work performed to support the accounts will depend upon the quality of your source financial information and the level of support that you select when engaging us to prepare your next set of accounts.

If you would like us to quote for preparing micro-entity accounts as detailed under our approach above please contact your local McCabe Ford Williams office.

To book a free consultation call your local MFW office Ashford, Cranbrook, Dover, Herne Bay, Maidstone and Sittingbourne.

Our blogs are correct at time of publishing and are intended for general guidance purposes only. They should not be taken or relied upon as giving specific advice on any particular matter and we therefore recommend that before taking any action you speak to an expert who will be able to provide advice on a case by case basis.