FRSSE eligibility with group situation

FRSSE eligibility with group situation

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Group structure with parent and 2 subsids. Virtually all trade thru parent company. In prior years the parent company (ie legal entity) was within FRSSE limits. Last year was its last year of eligibility (its year of grace). This year will have to move to UK GAAP. But if the group position is looked at, because the 2 subs have virtually nothing in them, the group meets criteria of a small group. Am in interpreting the rules correctly to read that for a small group, the slightly higher group limits can then be applied to the parent company? And therefore effectively parent can still prepare under FRSSE this year (either individual or group accounts). I keep re-reading the various guidelines and still can't make up my mind what it is trying to say.....Thanks

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By Towards excellence
22nd Oct 2012 10:55

Assuming the company is not part of an ineligible group (e.g. if it has a bank in the group), it can take advantage of the small companies regime if 2 out of 3 of the following criteria are met (broadly, for 2 years in a row):

1. T/over < £6.5m

2. Gross assets < £3.26m

3. Employees < 50

But if the company heads a medium sized group, it cannot take advantage of the small companies regime. To avoid falling into this situation, the parent company can use either gross or net criteria, or a mix of both.

If the following criteria are met, the group would be treated as small:

1. Group t/over net < £5.6m, OR gross <£7.8m

2. Group gross assets net < £3.26m, OR gross <£3.9m

3. Group employees <50.

Hope that is clear so far....If the parent itself fails the single company criteria, however, my opinion is that there is no way out of UK GAAP.

Good luck!

SA

 

 

 

 

 

 

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Replying to SteveHa:
Euan's picture
By Euan MacLennan
22nd Oct 2012 11:15

I disagree

Towards excellence wrote:

...If the parent itself fails the single company criteria, however, my opinion is that there is no way out of UK GAAP.

SA

An excellent summary of the qualifying conditions, but I think you have overlooked s.382(7) CA 2006 on  small companies, which says:

"(7)This section is subject to section 383 (companies qualifying as small: parent companies)."

So, if the parent company qualifies as small under the gross thresholds for groups (I agree that it can qualify under either net - which it does not - or gross) set out in s.383, even though it is not a small company individually under s.382, it is deemed to be a small company as s.383 takes precedence over s.382.

So, FRSSE can be used and the company is exempt from preparing group accounts.  However, if it is no longer small individually, the parent company will require an audit.

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Replying to Ruddles:
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By Towards excellence
22nd Oct 2012 12:28

No, I beg to differ Euan.

S383 (1) :A parent company qualifies as a small company in relation to a financial year only if the group headed by it qualifies as a small group.

My understanding of the above is that it restricts a company from taking advantage of the small companies regime. Thus, I have seen in practice a company which was met the 2 out of 3 'small' criteria, but could not use FRSSE as it headed a medium sized group. I cannot see  this as a 'permissive' rule, allowing a more lenient framework, rather, I view it as a restrictive rule.

SA

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Replying to Johndoe1:
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By stones8687
22nd Oct 2012 12:56

thanks

Thanks for the responses guys. Euan’s point is exactly the argument I was having with myself as to whether company/group could still fall under FRSSE. Would prefer if it did still come under FRSSE. 

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Replying to Ruddles:
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By Towards excellence
22nd Oct 2012 13:15

As an afterthought, if S383(1) were a 'permissive' section, we could have a medium sized company, at the edges of the criteria, which could avoid UK GAAP, simply by introducing dormant subsidiary and becoming a head of a small group. I do not think that is the intention of the legislation.

SA

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Euan's picture
By Euan MacLennan
22nd Oct 2012 14:52

Restrictive/permissive

I don't follow your point about restrictive and permissive.

It will often be the case that an individually small company under s.382 is the parent of a medium-sized group, but as s.382 is subject to s.383 which says that the parent company is not small, the parent will have to prepare audited group accounts in accordance with UK GAAP.

However, the OP's question is the opposite end of the spectrum where an individually medium-sized company is the parent of a small group only by applying the gross thresholds.  In such cases, the definition of a small company under s.382 is irrelevant because s.382(7) gives precedence to s.383's definition of a small parent company.  In this particular and unusual case, qualification as a small parent company depends on the subsidiaries being so small that they fit in the difference between the gross and net thresholds.

What surprises me is that not only does a parent company have the choice of either net or gross, but that under s.383(6) which says:

"A company may satisfy any relevant requirement on the basis of either the net or the gross figure."

it could choose net for turnover and gross for assets or vice versa..

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Replying to Johndoe1:
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By Towards excellence
22nd Oct 2012 15:18

My interpretation is that this particular section works to stop a small company heading a medium sized group using FRSEE, but does not allow a medium sized company to use FRSSE, just because it is the head of a small group. 

It's been fun.....I suppose the OP will interpret it as you have Euan, saving a lot of hassle and with a clear conscience.

SA

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By James99001
23rd Oct 2012 11:10

Companies House

I agree with SA, that if you are a medium company, you can not use the group limits to take the FRSSE exemption.

Presumably you will not be consolidating and as such if you chose to take the exemption, you would be filing/ preparing accounts which shows turnover and balance sheet over the limits.  You can "hide" this fact by filing abbreviated accounts, but as you will still be preparing full accounts for the shareholder(s), you may get some enquiries from them.

Personally I would do UK GAAP.

 

James

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