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Small companies


What is a small company?

There are 3 sizes of companies to consider when preparing your accounts; small, medium or large. There are thresholds for turnover, balance sheet total (meaning the total of the fixed and current assets) and the average number of employees, which determine whether your company is small or medium-sized. Any companies that do not meet the criteria for small or medium are large companies and will have to prepare and submit full accounts.

A small company can prepare and submit accounts according to special provisions in the Companies Act 2006 and the relevant regulations. This means that they can choose to disclose less information than medium-sized and large companies.

Public companies and certain financial services companies cannot qualify as small companies. Similarly, companies which are part of a group which has members who are public companies or financial services companies cannot qualify as small, except in certain circumstances – see question 2 below.

If you think your company qualifies as small, you may wish to consult a professional accountant before you prepare accounts in accordance with the provisions applicable to companies subject to the small companies’ regime.

1. What are the conditions to qualify as a small company?

A small company must meet at least two of the following conditions:

annual turnover must be not more than £6.5 million;
the balance sheet total must be not more than £3.26 million;
the average number of employees must be not more than 50.


2. Are there any companies that cannot prepare and submit small accounts?

Yes. A company cannot prepare and submit small company accounts if it is, or was at any time during the financial year, one of the following;

a public company;
a member of an ineligible group (see below);
an authorised insurance company, a banking company, an e-money issuer, a MiFID (i.e. Markets in Financial Instruments Directive) investment firm or a UCITS (i.e. Undertakings for Collective Investment in Transferable Securities) management company or carried on insurance market activity.
A group is ineligible if any of its members is:

a public company;
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 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity;
a small company that is an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company; or
a person who carries on insurance market activity.
Please note: Companies which would otherwise qualify as small but which are members of ineligible groups can still take advantage of the exemption from including a business review in the directors’ report prepared for members and from filing the directors’ report at Companies House.

If you have any queries regarding financial services companies which are excluded from the small companies’ regime please contact the Financial Services Authority.

3. Can a company qualify as a small company every year?

Generally, a company qualifies as small in its first accounting period if it fulfils the conditions in that period. In any subsequent periods a company must fulfil the conditions in that period and the period before.

However, if a company which qualified as small in one period no longer meets the criteria in the next period, it may continue to claim the exemptions available for the next period.

If that company then reverts back to being small by meeting the criteria for the following period, the exemption will continue uninterrupted.

4. What are the conditions to qualify as a small group?

To qualify as small, a group of companies must meet at least two of the following conditions:

aggregate turnover must be not more than £6.5 million net (or £7.8 million gross);
the aggregate balance sheet total must be not more than £3.26 million net (or £3.9 million gross); and
the aggregate average number of employees must be not more than 50.


5. What do small company accounts include?

Generally, small company accounts prepared for members include:

a profit and loss account;
a full balance sheet, signed by a director;
notes to the accounts; and
group accounts (if a small parent company chooses to prepare them).
a directors' report; and
an auditors report (unless the company qualifies for exemption from audit and takes advantage of that exemption);
The balance sheet must contain a statement in a prominent position above the director’s signature that the accounts have been prepared in accordance with the special provisions applicable to companies subject to the small companies’ regime.

6. What are the exemptions available for small companies?

Small companies can prepare and file simpler, less detailed accounts than those required by large and medium companies.

The requirements for companies subject to the small companies’ regime are set out in Parts 15 and 16 of the Companies Act 2006. Further information on the detailed format and content of accounts for small companies can be found in the relevant regulations.

The Companies Act 2006 and regulations also set out what the directors’ report of a small company must contain. Such a report does not have to contain a business review or a statement as to the amount that the directors recommend be paid by way of dividend. If the company has taken advantage of the small companies’ exemption in preparing the directors’ report it must contain a statement above the director’s or secretary’s signature to that effect.

7. What does a small company have to deliver to Companies House?

A company can file a copy of the accounts which it prepared for its members, or an abbreviated version of those accounts. You can find the content of abbreviated Companies Act accounts in the Companies Act 2006 and in Schedule 4 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008.

If you abbreviate the accounts, you will also need a special auditor's report which must state that in the auditor's opinion the company is entitled to deliver abbreviated accounts in accordance with section 444(3) of the Companies Act 2006 and that they have been properly prepared in accordance with the regulations made by the Secretary of State. You do not need to file this report if the company is exempt from audit - see question 10 of this chapter.

The right to prepare abbreviated accounts for Companies House does not affect the company’s obligations to prepare full accounts for its members – see chapter 4

Small companies do not have to deliver a copy 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 deliver a full balance sheet to Companies House.

If you prepare accounts in accordance with the provisions applicable to small companies, whether you register abbreviated or full accounts, you must include a statement in a prominent position on the balance sheet that the accounts have been prepared in accordance with the special provisions applicable to companies subject to the small companies’ regime.

8. Are there special rules for small groups?

Yes, a parent company which qualifies as small need not prepare group accounts or submit them to Companies House if the group is small and not ineligible – see question 4 above. If a small parent company decides to prepare group accounts their content is prescribed by the 2006 Act and by Schedule 6 to the Small Companies and Groups (Accounts and Directors’) Report Regulations 2008.

If you prepare group accounts they must contain a statement above the signature on the balance sheet, confirming that they are prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

Audit exemptions for small companies

9. What exemption is available?

There is exemption from audit for certain small companies but only if they are eligible and wish to take advantage of it.

10. Which small companies qualify for audit exemption?

To qualify for audit exemption, a company must

qualify as small (see chapter 6, question 1);
have a turnover of not more than £6.5 million; and
have a balance sheet total of not more than £3.26 million.
However, even if a small company meets these criteria, it must still have its accounts audited if a member or members holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demands it; or - in the case of a company limited by guarantee - 10% of its members in number. The demand for the audit of the accounts should be in the form of a notice to the company, deposited at the registered office at least one month before the end of the financial year in question. The notice may not be given before the financial year to which it relates.

11. Is there a separate category for charities that are audit exempt?

There is no longer a particular category for audit exempt charitable companies. They will qualify for audit exemption under company law in the same way as any other company. Charitable companies may also be subject to separate requirements for audit or other scrutiny of their accounts under charity law. More information is available from the Charity Commission website.

12. Are all types of small companies eligible for the exemption?

No. You must submit audited accounts to Companies House if the company falls into any of the following categories:

A parent company or subsidiary undertaking (unless dormant for the period during which it was a subsidiary) except where:
- the group qualifies as a small group or would qualify if all the bodies corporate (which includes non-UK incorporated bodies) in the group were companies;
- the turnover for the whole group is not more than £6.5 million net (or £7.8 million gross); and
- the group's combined balance sheet total is not more than £3.26 million net (or £3.9 million gross).
A public company unless the company is dormant - see chapter 8;
a company that at any time in the financial year in question was:
- a company that is an authorised insurance company, a banking company, an e-money issuer, a MiFID (ie Markets in Financial Instruments Directive) investment firm or a UCITS (ie Undertakings for Collective Investment in Transferable Securities) management company;
- a company that carries on insurance market activity; or
- a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers' association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I. 5)).
Some flat management companies that would otherwise qualify for exemption may have to prepare audited accounts to comply with the terms of their lease. If in doubt, you should consider seeking professional advice.

13. What does an audit-exempt company need to submit to Companies House?

If a small company qualifies for audit exemption (see question 10 & 11 of this chapter), it may submit unaudited accounts to Companies House in the form of an abbreviated balance sheet and notes or if it chooses full accounts. In either case, the balance sheet must contain the following statements above the director's signature:

For the year ending ………………(dd/mm/yyyy) the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies.

Directors’ responsibilities:

The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476,
The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts
These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.
Small companies that deliver a full balance sheet may choose not to include a copy of the Directors’ report and/or a copy of the profit and loss. In this case the balance sheet must also contain an additional statement that the accounts have been delivered in accordance with the provisions applicable to companies subject to the small companies’ regime.

14. How long do I have to deliver audit-exempt accounts to Companies House?

You have the same time for filing both audited and audit exempt accounts, and the law imposes the same penalties as for late filing of all other accounts. See chapter 5.

15. Does an audit exempt company still have to send accounts to its members?

Yes. In accordance with the Companies Act 2006, members have a right to receive or demand copies of accounts.

16. If my company does not trade does it still have to submit accounts?

Yes. All limited companies, whether they trade or not, must deliver accounts to Companies House. However, a limited company may claim exemption from audit as a 'dormant company' if it has not traded during a financial year, and provided it meets certain other criteria. Qualifying dormant companies do not need to appoint auditors and can deliver even simpler annual accounts to Companies House.

For more information about dormant company accounts, see chapter 8.