Limited Company Audit Exemption
A potential area of interest to post company formation clients.
The turnover threshold which currently exempts most UK limited companys from a statutory audit was raised from £1 million to £5.6 million for accounting periods ending after 30 March 2004.
The legal definition of a small and medium-sized UK limited company will also be changed so that now more companies will be able to prepare accounts with fewer disclosures than for 'larger' UK companies. This could lead to an increase in the number of people considering company formation. In the past, audits were seen as the 'cost' a limited company had to pay for the privilege of limited liability. Company audits provide reassurance to shareholders, lenders and creditors that the annual company accounts are reliable. Companies House has confirmed that 93% of the complaints it receives are about the credibility of filed accounts from audit-exempt companies.
However, a small UK limited company still has to produce full statutory accounts, so there remains scope for cutting more 'red tape'. The accounting requirements for smaller companies remain under review. Not all UK limited companies with turnover under £5.6 million will come within the new audit exemption provisions, because there are criteria other than turnover. In particular, companies not classed as small or whose total assets exceed £2.8 million must still have a company audit.
A Public limited company and those carrying on particular types of business, such as insurance broking and financial services, will remain subject to a company audit. Shareholders can require that an audit is carried out, for example if they are not involved in the day-to-day running of the company and require reassurance that their investment is being properly looked after.
Small and medium-sized UK company thresholds for accounting periods ending on or after 30 January 2004 a small UK limited company will normally be one that meets two or more of the following criteria for the current and previous year:
* Turnover not more than £5.6 million
* Balance sheet total not more than £2.8 million
* Not more than 50 employees
A medium-sized limited company will be one that meets two or more of the following criteria:
* Turnover not more than £22.8 million
* Balance sheet total not more than £11.4 million
* Not more than 250 company employees
The way forward
The existence of company audit exemption makes it more attractive for sole traders and partnerships to consider company registration to gain the protection of limited liability. However, there are tax consequences of such a change and it is important to seek our advice on these matters.
Do call us on 0207 608 5500, if you would like further help or advice on this subject..
