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)?