We find that for many small companies, preparing financial statements is a burden both in terms of cost and time in providing information to prepare supporting notes to these financial statements. Some of the notes may not have any overall value to the business, the owners, or other stakeholders.
What are the requirements?
UK registered companies are required to prepare their accounts in compliance with FRS102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
Small companies have been able to claim exemption where a simpler standard is required, to prepare an income statement and balance sheet alongside limited disclosure notes.
There is a further option, whereby small companies called “micro” entities may be eligible to prepare accounts under the micro entity regime. Such accounts are prepared in accordance with FRS105: The Financial Reporting Standard applicable to the micro-entities’ regime. Here, simple accounts are prepared that have minimal disclosure by way of notes.
In order to be eligible, the company must meet two out of the three following criteria limits below :-
- turnover not more than £632,000
- less than 10 employees
- £316,000 or less on its balance sheet.
FRS105 helps to simplify the company’s financial reporting obligation in the following ways :-
- A simple profit & loss and balance sheet is prepared.
- No detailed notes supporting the accounts other than a couple of compulsory notes.
- A Directors report does not need to be prepared and filed.
- Property businesses benefit further as FRS105 does not require revaluation at fair value, the value can be stated at cost, thus saving in valuation fees.
- Directors are required to prepare accounts for the company, which presents a true and fair view, accounts prepared under FRS105 automatically assumes this.
- But note, accounts prepared under FRS105 contain less information by way of notes, this can reduce the company’s credit rating and as a result, lenders may be less prepared to lend to the company.
The company will still have to file accounts within 9 months after the year end (ie, for company whose year-end is 31 December 2022, the filing deadline is 30 September 2023. Failure to submit accounts by this deadline will result in automatic penalties from Companies House.
Payment for corporation tax is due nine months plus one day after the end of the accounting period and so for a company with year-end date of 31 December 2022, the payment date is 1 October 2023.
Get in touch
If you are looking to reduce the cost of preparing your statutory accounts, our Accounting Services team can review your business, discuss with you your future intentions for the company and advise if adopting FRS105 is suitable for your company. As part of the process, we may be able to identify and explain other ways to streamline your financial record keeping and reduce costs overall.
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