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Disclosure of director's dividends profits -FRS102

Small companies filed abbreviated accounts & showed little of company profits. What with FRS 102 1A?

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I’m sure my question will affect many small accountants and their clients. I’m a practicing accountant. I’ve not seen it discussed on AccountingWeb.

Until recently, small companies were able to prepare FRSSE accounts for shareholders and file Abbreviated Accounts with Companies House. Abbreviated Accounts, if the Profit & Loss Account is not included, which is usually the case, showed little about the company's profitability and the director’s drawings. Notes to the Abbreviated Accounts only showed accounting policies, fixed assets movements, share capital and overdrawn director's current account balance (with a few more odd notes at times).

For accounting periods beginning on or after 1 January 2016, the new rules apply. This means no abbreviated accounts can be filed at Companies House and FRS102 or FRS105 Financial Statements must be filed instead.

I’m aware of the rules for filing FRS105 accounts for Micro-Entities (Turnover <£632,000, Balance Sheet total (total assets) < £316,000 and less than 10 staff) which essentially is a Balance Sheet with absolutely no notes (except possibly ‘minimum accounting items’ like guarantees, director’s [debtor] loan, financial commitments).

The change of rules means that rather than filing ‘a copy of’ the Balance Sheet, i.e. Abbreviated Accounts option, we must now file ‘the’ Balance Sheet. The new rules also mean that the exact same Financial Statements that are prepared for the shareholders are now also filed at Companies House i.e. we have to file what we prepared for shareholders.

I appreciate that for filing purposes at Companies House that these full Financial Statements prepared for the members can be ‘filleted’. Filleted Financial Statements can exclude the Profit & Loss Account, P&L related notes and the Directors Report. They must however include the full Balance Sheet notes and any other notes required by FRS102; or added to the Financial Statements for true and fair …..  or added to be helpful to the reader of the full Financial Statements.

Like many other accountants, I’ve grown up with the mentality of not filing anything at Companies House, for small owner managed limited companies, that shows the director’s / member’s profits, salaries, dividends and [creditor] director's loan accounts.

It appears that any company, that is not a FRS105 Micro-entity, must now file director’s / member’s income as noted above.

Reading Appendix C to Section 1A of FRS102, appears to state that once again fixed asset movements are shown (1AC.12 – 1AC.21) which is often of little real interest.

It is my reading of Appendix C sections 1AC.34 to 1AC.35 that give me cause for ‘concern’.

It appears that director’s remuneration [salaries, benefit in kind, company pensions], dividends, loan balances, P&L transactions [e.g. rent of home as office] must all be disclosed, not only in the full shareholder accounts, but the copy filed at Companies House.

Paragraph 1AC.35 does say that transactions conducted under normal market conditions can be excluded from disclosure, in the full and filing copy. I expect that unless a commercial salary is charged and a commercial rate of interest is charged on the director's loan account then both salary [typically £8,064 pa] and director's loan account balance must be fully disclosed.

I note that under Appendix D, disclosure of dividends paid in the period is ‘encouraged’, but must be specially disclosed for directors [as a related party transaction] as noted above.

There does not appear to be any need to disclosure the Corporation Tax note as this relates directly to a line on the P&L Account. If this was disclosed then a simple division by 20% would tell the reader the company’s profits.

Similarly, it appears that notes on debtors and credits are not required, though ‘encouraged’ for true & fair reasons. I’ve found that my accounts software provider is now splitting out the Corporation Tax creditor from ‘other taxes’ i.e. the reader can work out the profits.

…… and my question. Can a non-FRS105 company avoid disclosure of the director’s drawings (salary, dividends) and the company profits (20% gross up issue)?

Replies (10)

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By thevaliant
13th Feb 2017 13:15

Answer to your question:

Yes. They can.

Because FRS102 no longer requires disclosure of Directors Remuneration since 1/1/16.

And as for directors dividends - well, just keep doing what I've seen loads of small companies do - just stop the notes after long term creditors. Indeed, it is potentially possible to NOT disclose them now anyway, making some spurious argument that they are concluded under normal market conditions and therefore don't need disclosure.

Thanks (1)
By yelsnew
21st Mar 2017 11:02

"There does not appear to be any need to disclosure the Corporation Tax note as this relates directly to a line on the P&L Account. If this was disclosed then a simple division by 20% would tell the reader the company’s profits."

As far as I can see in VT accounts the FRS102 balance sheet and accompanying notes discloses the corporation tax year end creditor. Therefore the grossing up 20% shows the companies taxable profit without seeing the P&L

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Replying to yelsnew:
By lionofludesch
05th May 2017 18:03

yelsnew wrote:
Therefore the grossing up 20% shows the companies taxable profit without seeing the P&L

Then simply pay last year's tax late or this year's tax early to create the impression you wish to give to these busy-bodies.

In any case, this calculation will only give them the taxable profit and not the accounting profit, which may be very different.

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By jon_griffey
05th Apr 2017 18:51

FRS102 is extremely unhelpful in leaving us with a vague term like 'normal market conditions'.

Is it not a normal market condition that a director/shareholder gets paid salary and dividends? Is the salary for OMB directors up and down the country not 'normally' £8,060? There is no mention that it has to be a commercial rate.

As this settles down I expect that the consensus will be that directors remuneration and dividends is not disclosed at all on the default presumption that it is normal market conditions. Who is ever going to challenge this in audit exempt accounts?

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By stratty
05th May 2017 17:14

You can file abbreviated FR105 accounts to Companies House. IRIS has a different report for that but its possible.

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By Matrix
06th May 2017 14:58

Only if the company is eligible for FRS105. Otherwise you are stuck with the additional disclosure in FRS102.

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By Smokoe Joe
01st Nov 2017 13:40

What I find unsatisfactory with FRS102 is there is nothing linking retained profits brought forward and carried forward, so unless the only movement on reserves is profit for the year you don't know what the other amounts are, e.g. the assumption is dividends but not necessarily!

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Replying to Smokoe Joe:
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By Matrix
01st Nov 2017 13:57

These changes are included on the Statement of changes in equity which includes dividends.

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Replying to Matrix:
By Smokoe Joe
01st Nov 2017 17:43

OK, IRIS doesn't do one of them by default, have to see how to get one.

These are not compulsory for small companies, but are encouraged.

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All Paul Accountants in Leeds
By paulinleeds
02nd Nov 2017 14:03

What I had been doing over the last 6 months is including the 'useful' notes to the accounts, that were part of a set of full members accounts and are part of FRS102 1A accounts, as management pages at the back of the full financial statements, just like the detailed P&L account. As these notes (on Fixed assets, Debtors, Creditors, P&L Account reserve movement) are non statutory they are not included as part of the statutory financial statements and therefore not 'filleted' and not filed for Companies House filing purposes. I therefore prepare FRS 105 full accounts (Dir Rep, Accountant Report, P&L, BS only) but do not have to file the extra (non-statutory-management) notes added for practical user reading purposes.

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