Micro entity in the UK? Percipience into the FRS that you may want to follow
You’ve read an earlier blog of ours where we delve into what it entails to open and run a micro entity in the UK. Armed with that strong foundation, you’ve come to the right place if you’re still eager to explore and discover more information about micro-entities!
As a micro-entity, you enjoy the right to produce a simple set of year-end accounts leaving almost no information to be accessible by means of public records. Most micro-entities, until the recent past were using the accounting regime of small companies which called for a simple profit and loss statement to be submitted. The Financial Reporting Standard for Small Entities (FRSSE) changed the rule for financial years beginning on or after 1 January 2016. Small companies are now required to use the accounting protocol – FRS 102 – as larger UK companies did but with less reporting standards under section 102 (1A). With this new rule, however, micro-entities must not comply with FRS 102. They have been given a new standard of their own tailor-made for micro entities – FRS 105.
What does Financial Reporting Standard for Small Entities aim to do?
The basis – to save you time and help you minimize costs by offering:
- A simple format of accounts that contain fewer elements than even the basic small company accounting
- A simplified format of establishing standards that is easy to understand and straightforward to implement without specialized knowledge
Now comes the conundrum. Should you make the shift to FRS 105 and make use of the new regime to file your accounts or would you rather stick to what you have tried and tested – the small company accounts route? Well, the good news is, you have the choice. You are not required to adopt the regime. You can continue preparing and filing your end-of-year accounts using FRS 102 as large companies do. But it is to be noted that the reduced disclosure requirements have its own set of advantages and disadvantages.
How do you stand to gain?
- Presentation of Key Data has Simplified: Only one format for Profit and Loss and the choice of two formats for the Balance sheet makes this task less of a hassle than the regulations in FRS 102.
- Lack of Director’s Report: Preparing a director’s report is no longer required as outlined in section 415 (1A) of the Companies Act 2006
- True and Fair Accounting: Under the small companies’ regime, a certain degree of evaluation was required to establish the authenticity and fairness of the accounts despite disclosure requirements. This new micro-entities regime has only a few accounting items that require details. These have to be explained at the foot of the balance sheet.
- No Public Disclosure of the Accounts Required
Factors to consider for Micro entity in the UK
- Reduced disclosure translates to reduced information availability. This may deter or prove to be a hindrance when dealing with current and future creditors, lenders or credit rating agencies. Additional expenses may be required to get the information they seek, thus running up costs.
- Will you need to remain under the micro-entity regime in the near future? This is a valid point to consider if your organization is likely to grow at a fast pace. There is no point in reduced disclosure now, if you will need to come under FRS 102 next year, for instance.
- The classes available for asset and liability are summarised. This prevents analysis of these facets into intangible assets, fixed assets and investment property.
- As the need for accounting expertise reduces with this regime, the risk of an inaccurate and misleading view of the company’s standing increases. A highly summarised accounting also does not help in this case.
- Reporting under FRS 105 requires of a re-evaluation of assets, recognizing certain assets for internally developed intangibles or making a note of deferred tax in your books.
Now that you have clarity on the pros and cons of preparing and filing your end-of-year accounts for a micro-entity, the logical next step is to seek help and guidance actually to file it with HMRC. Data Tracks has over 15 years of expertise in helping UK firms comply with your reporting to the regulators. We have over 350+ experts guiding 17,000 clients globally. Start a conversation with us today at email@example.com