Discussion – The increase in the small company definition

Dan Wilson, Head of Business Advisory, is discussing what the increase in the small company definition will mean for UK companies.

The current audit threshold has been in place since 2009 and is the same as the small company definition, where companies, who meet two of the following criteria for consecutive years, are not deemed to be small and therefore require an audit:

  • Turnover above £6.5million
  • 50 employees or more
  • Gross assets of above £3.26million

Our friends on the continent with their 2013 EU accounting directive have decided these limits are too low and have increased both the turnover and gross asset limits to £10.2million and £5.1million respectively. This will come into force for all financial years beginning on or after 1 January 2016.

What does this mean to UK companies?

Well, in terms of an audit not a lot really. As it stands currently, the audit threshold remains unchanged, so we will go from the easy to understand situation, where if you are a small company you don’t need an audit, to different limits for being small and being required to have an audit. It is widely accepted that the audit threshold will increase, when and whether it will be to match the new small company definition, nobody quite knows as of yet.

What does all this mean to your company?

Small Companies
If you currently meet the definition of a small company, then its’ as you were, with the knowledge that you will likely be a small company for even longer, which means you can continue to file unaudited abbreviated accounts at Companies House.

Medium Companies

If you are currently a medium sized company with a turnover between £6.5million and £10.2million, you will currently be filing full audited accounts at Companies House. For all periods starting in 2016 (though early adoption is permitted) you will still require an audit, but can file audited abbreviated accounts at Companies House. This means you will soon have the advantage of not having to disclose your full accounts to the general public and your competitors, only a Balance Sheet and summary Notes to the Accounts.

Large Companies
For companies with turnover above £10.2million, again its pretty much as you were with full audited accounts to be submitted.

I think it’s fair to say most directors and shareholders of that middle band of companies will welcome this change, especially those who are owner managed (i.e. same directors and shareholders), as they will know the detailed numbers from their monthly management accounts and will be happy that they can decide who they provide more detailed information to.

They may soon also have the advantage of an audit being their choice rather than enforced upon them, all eyes on the Conservatives!

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