In September 2013, the UK Government confirmed that it will be introducing simplified financial reporting requirements for very small companies.
A micro-entity is defined as an entity satisfying at least two of the following criteria:
- 10 or fewer employees;
- Total assets of £316,000 or lower;
- Turnover of £632,000 or lower.
Previously, micro-entities were subject to the same financial reporting requirements as other small companies with a turnover of as much as £6.5 million. The Government has recognised that this is an unfair burden, and as a result of these changes, micro-entities will be able to prepare reduced financial statements.
The exemptions apply to financial years ending on or after 30 September 2013. Micro-entities will be able to draw up an abridged profit and loss account and balance sheet, with much reduced disclosures. These accounts will be deemed to provide a true and fair view. The estimated 1.6 million micro-entities in the UK will continue to be exempt from the requirement to file a profit and loss account at Companies House.
The exemptions are optional. It will be for the directors of micro-entities to assess the possible effect of reduced disclosures on their company and to decide which form of financial reporting statement – micro, small or full – best meets their company’s needs.