Expert view: Size matters in new company audit rules

Graham Wilson of Beever and Struthers explains how the government’s changes in the requirements of small business reporting may affect you.

Up until 1 October, the rules for determining whether a company was “small” (for filing abbreviated accounts at Companies House) and whether it was audit exempt, were similar but not identical.Now they are and consequently, the government estimates some 36,000 small companies will no longer need an audit. The beneficiaries will mainly be small property investment companies and those with high turnovers and low margins.

The change applies to accounting years ending on or after 1 October 2012. But if your company has a 30 September year-end, there’s no need to wait a year for audit exemption. Simply run your accounts to 1 October. It’s perfectly legal – see section 390(3)b of the Companies Act.

A less well-received rule change seeks to exempt from audit 83,000 subsidiary companies, but only if their parent company guarantees their liabilities. If groups were that concerned about the burden of audit and that indifferent about limited liability, their businesses would be structured as one limited company requiring only one audit.

Finally, 67,000 dormant subsidiaries will no longer need to prepare or file annual statutory accounts, provided there is a parent company guarantee. Because many dormant companies exist with a few pounds of share capital to preserve a business name, this rule change might have some takers.

Retaining a dormant subsidiary with significant asset value is a high risk strategy. You should at least think about dividends and possibly a capital reduction - then pray for two years that an unforeseen liability doesn’t arise.

Graham Wilson Partner Beever and Struthers