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FRS102 S1A average number of employees

FRS102 S1A average number of employees

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Under FRS102 Section 1A, there is a new requirement for small companies to state the average number of employees.

Where you may have a husband and wife company, each paid £8,060 p.a. the natural answer would seem to be 2 as they are the only 2 people on the payroll.

However it is not as straightforward as that as Section 1AC.33 refers to the requirements of Companies Act 2006 S411 which states that you need to count the number of persons employed under 'contracts of service' by the company.

We don't want to suggest on the statutory accounts that the directors are employed under contracts of service as that would invite National Minimum Wage and Auto Enrolment issues.

It would appear then that in this example (and indeed the typical contractor company), the average number of employees is always Nil.

Anyone have any thoughts on this?

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By taxguru
05th Sep 2016 19:28

For company law purposes, unlike for tax purposes (e.g. ITEPA/03), directors are not employees. A director is one appointed by the company as such in accordance with the provisions of CA/06 and the constitution of the company (s.250/251 define(s) the term(s) director/shadow director). Employees are employed by the company through a contract of employment.

A director is an officer of the company- s.1173(1), which an employee generally is not.

Further, there are specific provisions with regard disclosure of directors' details, remuneration etc.

In this case, therefore, the average number of employees will be NIL.

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By tom123
06th Sep 2016 07:05

Presumably, though, if the director had a straight forward contract of employment, he would count as an 'employee' for these purposes?

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Replying to tom123:
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By taxguru
06th Sep 2016 08:15

tom123 wrote:

Presumably, though, if the director had a straight forward contract of employment, he would count as an 'employee' for these purposes?

No, he won't. Directors' details are disclosed (according to specific rules) separately from employees'.

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By TerryD
09th Sep 2016 15:26

How does this work in consolidated accounts? Would you exclude only the parent company directors or the directors of all subsidiaries too (their remuneration is not reported in the group accounts)?

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By TerryD
14th Sep 2016 14:44

I've been thinking a bit more about this, and I don't think that I agree with the above comments. I think that if a director has a contract of employment, then he/she must be an employee. From there, I don't see why the absence of a written contract should lead to different numbers being disclosed.

I think that the point about directors' remuneration being disclosed (but not the number of directors!) is a red herring - especially since the Companies Act does not require a small company to disclose directors' remuneration, but it does have to disclose the average number of employees.

As an aside, the PWC accounting manual includes directors in this - it goes on at length about distinguishing a director who has a contract of service (an employee) from one who has a contract for services (not an employee).

Personally, I've always worded the Notes to the Accounts so that they include the words "including directors", "excluding non-executive directors", etc. Then there is no confusion.

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By PracticePartner
10th May 2017 12:17

Somewhat belatedly I will add that although I doubt whether anyone will try and cross reference statutory accounts disclosures to payroll records, where a director has a contract of employment I would include them as an employee, since those who do tend to avail themselves of things like statutory pay e.g. SMP which can only be paid to employees.

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