Micro-Entities’ Accounts

The Small Companies (Micro-Entities’ Accounts) Regulations 2013 were approved by the UK Government in November 2013 and introduce major (but optional) accounting exemptions for micro-entities. In response, the Financial Reporting Council (FRC) issued amendments to the Financial Reporting Standard for Smaller Entities (FRSSE) enabling micro-entities taking advantage of the exemptions to continue to prepare financial statements that are in compliance with the FRSSE.

The Financial Reporting Council (FRC) is to withdraw the Financial Reporting Standard for Smaller Entities (FRSSE) and plans to release a new FRS 105 for micro-entities which will come into force for accounting periods starting 1 January 2016. Many of the proposed changes to accounting rules for small and micro businesses are mandatory as a result of the EU Accounting Directive.

What qualifies your company as a Micro-Entity?

The legislation is effective for financial years ending on or after 30 September 2013 and where the company’s financial statements are filed with the registrar of companies on or after 1 December 2013.

Under SI 2013/3008 a company qualifies as a micro-entity if it meets at least two of the following three conditions:

  • Turnover not more than £632,000
  • Gross assets (balance sheet total) not more than £316,000
  • Average number of employees not more than 10

Claim Relief For Capital Expenditure Incurred Before The Start Of Trading

Relief for pre-trading expenditure does not extend to capital expenditure. However, similar rules allow capital expenditure qualifying for capital allowances to be treated as having been incurred on the first day on which trading begins.

However, first year allowances are given by reference to the date on which the expenditure was actually incurred.

Example:
Sally started trading on 1 September 2012. In preparation for trading she spends £10,000 on plant and machinery. The expenditure is treated as having been incurred on 1 September 2012 (the first day of trading). She claims the annual investment allowance, giving full relief for the expenditure against her profits of the first year.