Abridged accounts for small Limited Companies and Limited Liability Partnerships (LLPs) 

Accounts prior to 2016

Prior to 2016, small companies and LLP’s would prepare two sets of accounts:

  1. Full set of accounts for the owners and directors
  2. Abbreviated accounts for filing at Companies House

Abbreviated accounts contained just the balance sheet and a few notes.

One of the advantages for small companies and LLP’s of preparing and filing abbreviated accounts was that it meant less financial information was shown on the public record.

The implementation of the EU Accounting directive in 2016 meant that for accounting periods commencing on or after 1st January 2016, all small companies had to transition to a new Financial Reporting Standard, namely FRS 105 Micro Entities, which was a choice for the smallest of businesses, or FRS 102 for everyone else.

As part of this change, abbreviated accounts were also abolished.

Consequently, all small companies and LLP’s are only permitted to prepare ONE set of accounts. The accounts filed at Companies House are the same as those provided to the directors and owners, with the exception that the profit and loss, notes relating to the profit and loss and the report of the directors/members can be removed. This is known as ‘filleting’.

Even with the filleting, more financial information would be shown publicly at Companies House than prior to the changes.

What are abridged accounts?

To address this issue slightly, the Companies Act allows for a small company or LLP using FRS 102 to prepare ‘abridged accounts’. They can either prepare an abridged profit and loss, an abridged balance sheet or both. This decision can change year on year.

As mentioned above, the profit and loss is not filed at Companies House so there is no real reason to prepare an abridged profit and loss.

Preparing an abridged balance sheet is much more appealing.

This means there are less notes to the balance. For example, there is no breakdown of fixed assets between plant and machinery, motor vehicles, computer equipment etc. There is no breakdown of debtors between trade debtors, prepayments etc. There is also no breakdown of creditors into trade creditors, accruals, taxation and bank loans etc.

Crucially no tax creditor is shown (as there is no breakdown of creditors due within one year). This is important because this figure could be used to estimate net profit which is highly sensitive information.

It is important to note that only one set of accounts can be prepared. Therefore if abridged accounts are prepared, this will be the final, one and only set of accounts for the year.

We understand that some of the information omitted is useful for owner-managers and therefore to bridge the information gap, A4G will provide clients with a supporting management report free of charge which contains this information. Please note however that this does not make up part of the statutory accounts and is for information purposes only.

Based on the above, preparing accounts with an abridged balance sheet seems to be the sensible choice for most small companies and LLP’s. However, there are some issues to aware of and some additional admin if you choose to prepare abridged accounts.

What issues do you need to be aware of?

1). We have found recently that some lenders, particularly high street banks, are not accepting abridged accounts when reviewing the lending decision, despite them being perfectly legal. Therefore, if you are considering obtaining any lending, either business or personal, you may wish to prepare unabridged accounts for this year.

2). To prepare accounts with an abridged balance sheet, directors of a Limited company and designated members of an LLP must obtain consent. The consent must be obtained:

  • From 100% of shareholders for Limited Companies or 100% of members for LLP’s
  • On an annual basis (continuing authority is not permitted)
  • In respect of the preceding financial year
  • Before the accounts are approved

The above should be obtained by writing to the shareholders/members and asking them for their expressed consent to prepare accounts with an abridged balance sheet.

This process must be undertaken each year.

3). The balance sheet in the accounts will contain a statement that the required consent has been obtained. A signature on or approval of the balance sheet by the directors/designated members will signify that the required consent has been obtained.

We will ask the directors/designated members to sign/approve a separate statement to confirm that consent has been obtained.

Please note that preparing abridged accounts without consent of 100% of the shareholders/members would mean that the accounts do not comply with the Companies Act. The directors/members could face a fine and/or prosecution and would be required to rectify the situation.

What action do you need to take?

  1. The directors/designated members should decide each year whether preparing abridged accounts is in the best interests of the company/LLP
  2. If you decide that abridged accounts is the best option, you should then obtain approval in writing from 100% of the shareholders/members.
  3. Discuss with your client manager if you would like to talk through the options and/or if you need any help with the paperwork for obtaining consent for abridged accounts

Should you have any queries regarding the above or require assistance with the documentation required, please give your client manager a call on 01474 853 856.

Want to find out more?

Call us on (01474) 853856 and we will put you in contact with one of our advisers, or send us an enquiry by clicking below.

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