Late last night, the Department for Business, Innovation and Skills issued a consultation on a long-awaited topic - the introduction of Micro-entity provisions in the UK.
What are Micro-entities?
Micro-entities are very small companies, LLPs and qualifying partnerships, defined in the EU's Micro-entities Directive as not exceeding two out of three of the following limits:
|Balance sheet total||€350,000|
Oddly, the BIS consultation translates these very precisely into sterling as £578,830 for turnover and £289,415 for balance sheet total! Let's hope BIS decides on slightly more memorable rounded figures in the final legislation.
What are the proposed changes?
The changes for a Micro-entity if the Directive is fully implemented are as follows:It would only need to prepare a very simple balance sheet and profit and loss account, and will not need to file the latter. No notes will be needed other than commitments and guarantees, advances and credits to directors and acquisition of own shares (these can go at the foot of the balance sheet). This is not likely to prove too controversial for owner-managed Micro-entities, although there may be questions on whether eliminating notes to the accounts will adversely affect an entity's access to credit. BIS asserts that finance providers are unlikely to rely on published accounts for such entities and the effect will be minimal. The BIS consultation seems slightly confused on this point as question 11 refers to 'the existing small company option to file an abbreviated balance sheet and profit and loss account' - of course, small companies usually only file the balance sheet.It will not need to recognise and present most accruals and prepayments - however those for the cost of raw materials and consumables, value adjustments, staff costs and tax will still be needed. This is likely to be more controversial, especially as many accountants may feel that leaving out some but not all accruals will actually involve more effort than full accruals accounting! What's more, BIS notes that, to ensure dividends are made out of realised profits, entities may in fact need to separately calculate an accruals-based profit in any case. Therefore it's not clear that eliminating accruals and prepayments from published accounts would really benefit smaller entities.No annual report will be needed provided the note on acquisition of own shares is made (see above). Rather confusingly, the BIS consultation proposes that Micro-entities would still need to prepare a Directors' Report but would not need to file it, though this is already true for all small companies! It seems more likely that the report could be removed entirely.The balance sheet could be filed electronically rather than as a full statement. The abridged balance sheet would only contain 'capital letter' headings. This is unlikely to be controversial.
When will the changes come into effect?
The consultation deadline for responses is 22 March 2013. BIS will then publish final proposals soon after this, and will bring in secondary legislation as early as possible. Some commentators are predicting an October 2013 date for this (which would reflect the timing of other company law changes in recent years).
You can find the consultation document here.